In North America, a number of generations ago, most families lived in the rural area, now many of us live in urban areas. Although, with high speed internet, the rural areas are attracting people from the cities. The rural areas have less people which is both good and bad – it is good because you can learn who the people are, if you are a city person it can be bad because they all learn who you are. In the city, there are seemingly fewer interactions even though there is more people. If you live in one of the rural towns, ideally you would like to see a company locate and prosper in order the town survives and maybe even grows. The book Capitalism Comes to the Backcountry by Bryan Palmer, between the lines, Toronto, 1994 is about one of those rural towns – Napanee and the Goodyear Tire plant. If you look at any shopping mall parking lot you will see a variety of cars with Goodyear Tires and many will know of the Goodyear Blimp from Sporting events – flying overhead to give the overview of the event.

When any plant comes to a town, before they arrive one of the attractions of the town is access to land at low prices. Generally after the plant arrives the projections of the benefits of the plant sends prices higher for the short term, then real estate prices level off because the benefits of stability does not necessarily translate into rapid growth. Another aspect is the workplace – some companies have unions, some prefer not to have one. When Goodyear moved to Napanee, the number of people in a unionized job was very low and Goodyear closed an union plant to open a non-union plant.

With every industrial location there are government dollars to help – all there levels of government assist in plant locations – from infrastructure dollars to tax abatements to training to grants locating in “underserviced” areas. Depending on the government of the day and timing to elections, the grants, bonds or forgivable loans can and be and generally are very generous.

Linking to dividend paying companies, when these companies expand the government helps and this is when you will wear two hats – as  an investor you want your company to take advantage of every grant or government assistance possible; as a tax payer you may wonder why your company needs government money. Generally your investor side wins out. In order for your company to take advantage of every opportunity, relocating some operations to the rural area, but not too far from an urban area is good thing to do. The goodwill in the rural area will translate to stable operations for the first 10 years and if the company is a good corporate citizen even longer.

There are more questions than answers, till the next time – to raising questions.

The next time you are at the grocery story go by the egg section and see how people buy eggs. Many people will buy eggs on a regular basis for one or more of their meals, to use in cooking as the egg is a needed ingredient. For the most part eggs come from factory farms where many chickens are in a barn and they lay eggs. The eggs are collected, sorted and go into cartons to be shipped to grocery stores. Eggs are one of the few products where before buying, people will open the cartoon to ensure all the eggs are in a ready state to be eaten. If you observe how people buy the eggs – some will take the cartoon and not look; some will take a short glance and others will carefully examine each egg in the cartoon. None of the methods is wrong for in the end the person is buying eggs.

Linking to dividend paying stocks, there are many methods to buying stocks and every year the ability to use the methods is easier for everyone. When markets reach new highs it seems everyone is right, because the market went up. When the markets are up even if you threw darts to pick the stocks and they have risen in value, whatever you did was correct, because you are invested. The trick of course is to duplicate whatever you did in the past to pick winners in the future. The easiest method to duplicate is to pick proven profitable companies which pay a dividend. When the company is profitable it should have a higher multiple of trading versus a company not making profits. because at the end of the year it will still be in business. If the company pays a dividend, you can ensure the margins it makes to pay the dividend remains a constant, if the margins are falling, there needs to be other reasons to own the company. Eventually the markets will correct themselves and it turns out profitable companies stock will fall less because how much money the company earns will be a prime reason for owning it.

There are more questions than answers, till the next time – to raising questions

From the book Empire of Blue Water by Stephan Talty, Three Rivers Press, NY, 2007, one of the interesting management stories is the story about the Spanish myth. Spain received great amounts of gold and silver from Mexico and Peru as they had claimed those lands for their own. There is still gold and silver mines in those countries which you can buy shares in. For 150 years Spain controlled Central America and other countries generally left them alone. During that time – Spain had a centralized system which everything was reported to Spain and little was done without the approval of superiors. For many years the system worked well, but similar to all centralized controlled systems, there was little room for creative thinking outside of Spain or in its colonies. The people who became administrators knew how to satisfy the paperwork, but not necessarily how to defend the countries. The myth of the Spanish forces and their ability to defend the area and the mines grew, and similar to myths the affect was to keep away the other European countries.

When the King of England who had ambition but no money, decided to takeover Jamaica, it turned out to be easier than one would have thought it should be. This lead to the privateers and the raids of Henry Morgan. Although Captain Morgan benefited from being an excellent captain, he also benefited from the breaking the myth of the Spanish response. One would have expected Spain would throw vast resources to protect the mines and the gold, but there were other pressing items going on. The vast resources only came at the end of the Captain Morgan’s raids and through a clever deception they were beaten. The raids at Maracaibo and Panama showed the Spanish defenses as limited at best. Part of the reason was the privates were fighting for a large share of the treasure to be taken, while the Spanish soldiers were poorly paid, equipped and trained, and why risk your life for someone else’s treasurer?  The soldiers were at the posts, but would fear the pirates reputation, and soon the pirates would leave and things would return to normal. The myth of the Spanish empire was not the reality of it. After Morgan’s last raid, England and Spain agreed to a truce where Spain would not have a monopoly over trade in the Caribbean, England would keep Jamaica and Spain sent money to England to stop the pirates from operating. (it turned out in 1692 the place where the pirates were operating from – Port Royal in Jamaica was struck by an earthquake happened off the coast sending a tsunami (large waves from the sea at the town) and the town was destroyed.

Linking to dividend paying stocks, all companies which have enjoyed success are profitable and pay a dividend build a myth around them. The myth is the moat which keeps away the competition, many times the myth matches the reality but sometimes the myth and the reality do not match. When that happens the competition begins to take away market share, and soon it is easier to do. When that happens, the myth and the reality are a mismatch and the company will be in restructuring mode. As shareholders part of your task is to ensure the reasons why you bought the shares including paying a dividend remain a fact not a myth.

There are more questions than answers, till the next time – to raising questions.

From the book Empire of Blue Water by Stephan Talty, Three Rivers Press, NY, 2007, one of the interesting management stories is pirates were pirates for one reason – plunder or gaining the most treasure as possible. When the pirates raided a town, there was usually a fight, but in preparation for the fight the town’s treasures were hidden or most was hidden. Pirates were semi tolerated by the local population because they came in for the money and left for the town to rebuild. If you stayed alive you could rebuild and perhaps fortify the defences for the next time. This lead to different management styles of the pirates – the extreme was Francis L’Ollonais who was a great strategist, innovator, achieved results and was a complete sociopath. He enjoyed torture, killing people by beheading them and a host of other type of activities. The result of being a sociopath was the locals talked about where the treasures were, as well as giving information the pirates needed. After a short career, he was captured and dismembered because the enemies hated him so much.

Other pirates used some of L’Ollonais’ techniques but they did not enjoy the torture as much as he did. If you are fighting the opposition, one can expect some degree of breaking the law or breaking the normal traditions of the industry. If you want a short career follow L’Ollonais example. Captain Morgan learned lessons that sometimes you need to show you can follow the L’Ollonais’ example, but 99% of the time you do not need to in order to achieve results. In Captain Morgan’s raids – preparation, as much inside information as possible (Morgan used former prisoner’s insights),  confidence to always act if you have the upper hand even if you do not and daring with get you the results. Part of the inside information is learning how the opposition will or should react – what are their normal policies and procedures? How well prepared and battle ready or tested are they? Between 1663-1670 Captain Morgan 4 largest raids were on Granada, Portobelo, Maracaibo and Panama each time millions of dollars for the crown, himself and the pirates.

Linking to dividend paying stocks, one of the great attractions to the companies is they have a established market share which generates profits to pay dividends. There are always alternatives and potential changes in the marketplace. In the case of companies, remarkably few people will die from the financial battles, but there are battles nevertheless. As a shareholder you need to assure yourself the senior management and largest shareholders are not sitting back and enjoying the fruits of their past labour and continuing to maintain their market share. If they are fighting for you, as a smaller shareholder, you can sit back and enjoy the fruits of their labour.

There are more questions than answers, till the next time – to raising questions

When Columbus discovered Central America looking for a faster route to South Asia and the spice trade, he was more of a diplomat, than takeover artist. He established the presence for Spain and on the next round of ships Cortes and others came looking for gold, the takeover artists of the day. At the time Cortes had newer and better fighting tools (the gun), the positive value of opposition to the Incas (who treated non Incas very badly) and great ambition to find the sources of gold. In the end Cortez took over the Inca empire for Spain which resulted in the country of Spain jumping to become the most powerful country in the world. According to the book Empire of Blue Water by Stephan Talty, Three Rivers Press, NY, 2007 from the gold mines of Mexico and Peru between 1500 and 1650 approximately 180 tons of gold flowed through the official port of Seville. In addition 16,000 tons of silver came through Spain. One of the affects of this gold and silver was Spain opened a mint in Mexico, the mint produced over 2.68 billion coins and the world used the coins as common currency. The Spanish coin was called the Spanish piece of 8 and you may remember stock prices were quoted in 1/8.

As time went on, the King of Spain Phillip IV was dependent on the gold and silver to pay for the country’s bills. This was great while Spain had control of Central America and the Seas to transport the gold and silver back to Spain. However, things began to change in 1660’s, first the King of England was broke and lusted after Spain’s gold, he  decided to send the navy to takeover Jamaica. If you draw a line across the Atlantic Ocean between Central America and Spain, the line goes through Jamaica or it was a strategic asset. The British takeover of the land of Jamaica and the giving of letters of marque or letters of commission or what is now termed diplomatic immunity which gave captains and the crew the ability to behave similar to pirates, as long as the crown received 10% of the treasure. The captains of the crew similar to many people decided they were prefer not to pay taxes or commissions to any crown became pirates. One of the most important pirates of the era is Captain Henry Morgan, you may know his name from a bottle of rum.

Linking to dividend paying stocks, in this case, Spain had a monopoly on the gold and silver trade, its balance sheet as long as gold and silver came in, there was little worries outside the normal weather concerns. When the conditions changed, partly as a result of Spain not keeping pace with the potential attackers, for example one of the ships travelling back and forth was designed to carry paper work, similar to now, most accountants are not expected to shoot guns to protect the paperwork. The people on the ships were government employees, not navy fighters, but they did ensure the paperwork was done. If you go to a meeting where the company is concerned more with the paperwork than fighting off its competiton, expect the market share to fall and be prepared to sell your shares.

There are more questions than answers, till the next time – to raising questions

The universities have formally graduated their students for another year and the first part of summer begins. The second part is starts when public and secondary schools are closed down at the end of June. For generations, the common saying has been and continues to be – one of the best methods to ensue your livelihood is through education – both formally and continuing education after graduation. Likely the continuing education will be more job related, but all levels of education are good. The evolution of the saying was more pronounced before the second world war, when only a minority of students went to postsecondary education. Many people had jobs which involved the use of their bodies, their arms, and legs. As society changed the newer jobs involved the mind and fingers. For the newer jobs, post secondary education was considered more important. It was after world war II, the government sent many of the returning veterans to post secondary education while being paid. This caused the growth of many of the post secondary education institutions which caused the children of the veterans to see going to post secondary education as a viable option. The expected work was different than using your arms and legs, although the money was not necessarily higher. If you look at the people who earn money in the trades, which has a history of on the he job training education, many earn more than those with post secondary education.

Linking to dividend paying stocks, as someone who has gone through the post secondary education route and am bias that way, education offers continuing dividends in the future. It may or may not give you a upper income living, but it will offer you perspective on what happens in the world. You maybe more cynical about the world or happy to play a part – helping your clients meet their challenges they face. You may discover your parents or grandparents were correct in their thinking- slow but steady dividend payments which use the power of compound interest; living within your own means, enjoying life and your family; learning to use the free or the resources in the community; and doing good are rewards to aim for.

There are more questions than answers, till the next time – to raising questions

When the stock markets make new highs which is a great thing, there are two ways it can go one is go up more or second is a correction or downwards. In retrospective it is easy to see where it is going but similar to predicting election results, no one is quite sure any more. At some point, it is a good idea to be a little defensive and look at Utility Companies or those investor owned companies which provided hydro to your home or heat your home during the winter (gas companies). The first choice is where do you live and who provides you. The great thing about utility companies is if you live in an urban area, you are likely dependent on the utility and if you do not pay your bill, the utility shuts off the power. The big question about them is how is the general economy the utility serves doing and how much inexpensive hydro do they produce, an example is owning hydro dams.

Craig McGee of Morningside Research looked at utility stocks with a focus on downside protection. He was searching for the best stocks using the forward Price/Earnings Ratio, the Price to Cash Flow, the expected dividend yield relative to the historical median yield and low earnings variability. In other words, companies which tend to be consistently profitable and expect to continue their ways.

The top ten companies were ranked:

Rank     Company                  Symbol    P/E         P/CF      Expected   Earnings

–                  –                              –              –               –          Yield %       Variability %

1          Entergy Corp             ETR-N     12.39      3.51        4.36             10.11

2.        Southern Co               SO-N        15.82     6.27        4.81              3.41

3.         Questar Corp             STR-N      18.62     8.58        3.18            26.04

4.         Northwest Nat Gas    NWN-N     19.54     7.19       4.09               2.96

5.         Hawaiian Electric          HE-N      14.62     5.83       5.23               7.20

6.        Wisconsin Energy        WEC-N      17.46    7.76       3.44              5.18

7.        Consolidate Edison        ED-N       14.67    6.69       4.58              2.49

8.         PG&E                          PCG-N       15.21    4.74      3.99              8.06

9.         Xcel Energy                XEL-N         15.34    5.93       3.91             2.37

10.        Teco Energy                TE-N         17.19     5.70       5.12            13.00

The above picked 4 variables which give a good picture of the utility and you can add more to complete your analysis but the data shows there are choices to minimize risk. If there is a pullback of the market, shares in utilities tend to rise because of the consistency of the earnings. As long as the area the utility serves is not recession (or is well diversified) and the plants that produce the hydro – gas, coal, hydro, nuclear have low fixed costs relative to the income they are receiving, the companies can be a good investment for a long period of time.

There are more questions than answers, till the next time – to raising questions.

One of the reasons to buy dividend companies is owning some of the best brands in the world. As consumers we trust a variety of brands and when you look around your home you will see them. Companies own the brands, spend millions of dollars ensuring as a consumer you buy their brand versus someone else and stock holders reap the benefit in terms of stock prices and dividend payments. Recently Tyson Foods bought Hillshire Brands to enhance their line up of foods, to gain greater supermarket exposure and to make more money for the company. Hillshire Farms has some national brands which over the years are part of the average consumer buying habits. Tyson Farms outbid another competitor and paid more than 30 times earnings and a 70% premium to what the stock was trading at before. This means the new valuation for great brands is 30 times and the stock price jumped 70% from before the takeover. There are other companies that have great brands which could sell for the same multiple if they were for sale. Jim Cramer on one of his Mad Money shows valued Kraft at close to $70 billion if the divisions were for sale – at the moment they are not for sale, but in the name of unlocking shareholder value people are looking, maybe even kicking the tires.

Linking to dividend paying stocks, one of the great strengths of dividend paying stocks is the brands that continually generate income for the company. If you own a consumer based company and other companies are paying 30 times the earnings, your company is automatically worth more and the stock price should rise to reflect the new reality of pricing. Since the brands are not for sale, the rise will likely be over  a period time and you can collect your dividends along the way. This is one of the reasons why over the long term dividend paying companies increase your wealth.

There are more questions than answers, till the next time – to raising questions

If you ever been to a museum, after looking at the objects in the museum and enjoying the visit, later you might wonder how did the stuff come to be at the museum. Very often somebody bought it and donated it, in the museum world they are suppose to show the original purchaser had title. In an earlier time, things such as ownership were often overlooked and objects disappeared from one country to end up as collectibles in another country. When a country is stable in terms of its government, the disappearance of the objects is not good. When the stability of its government is suspect, perhaps some disappearance is good, for expensive objectives are often changed – metal melted down, jewels divided up and paid to the new regime and the people trying to make a living. As long as people had disposable income, they have enjoyed nice things, treasures have been moving back and forth for generations. The Rape of the Nile by Brian Fagan, Charles Scribner’s Sons, New York, 1975 is about tomb robbers, tourists and archaeologists in Egypt. The country had one of the longest, wealthiest civilizations in the world under the rulers of the Pharaohs. The crafts people at the time produced magnificent objects for the rulers. The ancient Egyptians saw death differently – the Pharaohs would come back from the after life, presumably they would need to return a similar lifestyle as they had when living. The tombs are and were a treasure trove of paintings, jewels, gold, all treasures everyday individuals would like to have and expect to have.

In China all those who worked on the city for the Emperor were buried with the Emperor; in Egypt the people moved to work for the next Pharaoh and thus some of the valuables went to extra income. There was an ability to earn a living from tomb raiding and both tourists and locals were willing buyers. Archaeologists are a slightly different breed, they want to discover the remains, particularly the remains of the wealthy people in the country for the glory of the museum and themselves. Sometimes when treasures were discovered they were sent to other countries particularly – England, France and Germany at a time when the items were not important to the rulers of Egypt. The great museums of the countries have a wealth of information for its residents to observe, study and eventually some will travel to Egypt.

Linking to dividend paying stocks, when receiving the dividend you do not have to worry about the providence of the object, as a shareholder you have a right and expectation for the dividend. Similar to treasures of another country in a museum you can see the dividends often and be enriched by them.

There are more questions than answers, till the next time – to raising questions