When you look at the list of the stocks traded on the exchanges, you will find hundreds of companies, invariably all trying to do the same thing – make money. One of the first tasks you have is to narrow the field – this blog believes one of the best methods to make money is by investing in companies that are proven winners which have a history of paying dividends. By starting with that list, you will tend to be better off in the future. Occassionally in the Globe and Mail and other financial papers, analysis are run to help people. Ian McGugan does a column which helps to narrow the list. Recently he teamed up with Craig McGee of Morningstar.

They were looking to see if US Dividend stocks are still reasonably priced? The first test determined yes they are – dividend stocks are trading at 14.7 times earnings, while historically they trade at 14.9 times.

Next step – which ones are the good ones? To find firms that appear the most reasonably valued, he used CPMS to select the 20 U.S. stocks with the best combination of low price-to-earnings ratios, low price-to-cash-flow ratios and low price-to-sales ratios. (All of them are based on the past four quarters’ results.)

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

This week Verizon – the leading wireless provider in the US closed a bond deal that helped it to buy out Vodafone share of its business. The bond deal was capped at $ 49 billion but had orders up to $100 billion. The 30 year bond yield 6.5% and the 10 year bond was at 5.2 %. The existing US bond yields on a 30 year bond is 3.85% and a 10 year 2.91%.

When you look at another piece of infrastructure – in the 1870s and beyond millions – now billions of dollars went into the building of the railways across the US and around the world. Have you ever wondered why the the money flowed from Europe into railway bonds? The answer was high interest rates and a semi-government guarantee of the backing of the lands. In the case of the railways, most lines that were conceived and built were not profitable, but were given large land grants which under the correct conditions and overtime some could turn out to be income producing. For example, the railway lines which ran through coal country was a great idea – but someone had to set up the mines, do the mining and finally ship it before the railways would see any cash flow. Many railways ran out of time and went bankrupt, many needed to be restructured and over the last 100 years has evolved into the railway infrastructure that exists today. Investors were attracted by high interest rates in the 1870’s and 80’s and if you look around the world, in the last few years a number of institutions were bankrupt caused by high rates and the seemingly never ending task to attract more money to pay the rates. The industry changes but the reasons remains the same.

Linking to dividend paying stocks, as an investor you want high interest rates, as a payee you want low interest rates, however whatever the rate is the company has to have the financial ability to repay its loans. The homework of the dividend buyer is not just to buy the highest yields, but the most sustainable yields from a profitable company. There are numerous examples which allows one to have choice, pick well.

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

you were to look at the richest people in the world, there tends to be a few women, in the early 1900’s one woman’s name would have stood out – Hetty Green. Over the years, she increased her wealth to today’s equivalent of over $ 2 billion. Hetty in business was a titan, but in personal life lived in modest surroundings and dressed in black. Her story in the book The Richest Woman in America – Hetty Green in the Gilded Age by Janet Wallach, Doubleday, 2012 is an interesting read on a number of accounts. Hetty was an interesting person, she lived and prospered as the US turned  into an industrial power which the book describes. Hetty also learned early about the power of compound interest and receiving dividends – her largest investments were the railroads and mortgages and/or real estate.

The growth of railroads was an interesting time in the US from little to crossing the US.  To build the railroads – governments gave free land, which the railroads sold bonds at high interest rates – European money bought the bonds due to the high interest rates being offered and railroads were built. After a few years, too many railroads were built, some went bankrupt which threw financial markets around the world in a decline, then reorganizations happened and the process was repeated. The events of the past few years are remarkably similar to what happen in the 1870s. In this landscape, Hetty managed to buy the good railroads when the prices were down and sell when the prices were up.  How did she do this on a regular basis?

Some of her wisdom is

Before deciding on an investment, seek out every kind of information about it. (investigate and do your homework)

In business, generally do not close a bargain until you have reflected on it overnight or Never be in a Hurry to get rich.(if it is great deal today, it will be a great deal tomorrow – take your time)

Before making a deal, if anyone is fool enough to offer you the full amount, take it. If you are offered less, tell the person you will give an answer in the morning. Think about the matter over carefully in the evening. If you decide that it will be to your advantage to accept the offer, say so the next day.  (what is your best interest? remember it is easier to lose money than make it)

Common sense is the secret of making money.

When good things are so low that no one wants them, I buy them and lay them away; when owing to some new development, they go up and my shares are needed that others will pay dearly for them, I am ready to sell. (if you buy quality, you can be patient and collect the dividends as time goes on)

I also buy when everyone wants to sell, and selling when everyone wants to buy.

If one can buy a good thing at a lower cost than it has ever sold for before, he may be fairly sure of getting it cheap.

(the above three imply some basic rules: being in cash is a good option; you must have regular income stream be it from dividends or interest payments as markets will go up and down – buying profitable companies when prices fall is a great buying opportunity; try to stay out of debt of keep it very manageable).

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

There is a fairy tale about a goose that lay golden eggs. At first the farmer who received the golden eggs thought it was awful because he used the eggs for food, later he sold the eggs and his table was full as well as having extra spending money. As time went on others around the farmer thought they should find the secret to the golden egg and eventually they killed the goose. The others did not find the secret and in theory the farmer went back to a normal farmer that once had a goose that laid golden eggs.

Many people have heard about the Carnegie Library – they are found in many urban places around the US, because the head of US Steel was Andrew Carnegie. After he made his fortune, one of the many ways he gave back to the US was using some of his fortune to build library buildings. One of the many stories about Mr. Carnegie is as he was learning about investing and the power of dividends, he is said to have cried out “Eureka! Here’s the goose that lay the golden eggs”

Linking to dividend paying stocks, with a steady stream of income through dividends on a year by year basis, you can have your golden goose. The important aspect is the company has to continue to be profitable and well managed.

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

Recently attended a fall festival which involved music and food. This particular festival has been going on for over 10 years and every year the organizers add another feature to continue to attract people. Those that enjoy the music will come back on a regular basis. At this time of the year, fresh harvests from the farms is being picked which means whatever the crop is that is grown – a festival is or will be coming soon. Whether is tomatoes, apples, pumpkins, corn or something else – a festival is nearby and it occurs every year at this time. The food is the attraction, but so is music, nice weather, and people watching.

Linking to dividend paying stocks, one of the attractions of dividend paying stocks is the regular payment of the dividend. The company has been profitable and shares the wealth with its shareholders on a regular basis, often increasing the amount when they have good years and expect to continue. Similar to the annual fall festival is the annual fall dividend and that is something to always look forward to.

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

The name James Bond conjures up many images of movies and books and of a particular image which many have found and continue to find very appealing. In the book Casino Royale by Ian Fleming, Thomas and Mercer, London, 1953, the character of James Bond is introduced to the public. Among the many traits which have remained with Bond is going to the Casino. In the book and the movie, invariably Mr. Bond and the Treasury at the spy agency he works for is very happy. In the book Casino Royale, Mr. Bond outlines his strategy to playing at the casino – he is asked to bet on his favourite numbers, Mr. Bond says I have no lucky numbers I only bet on even chances or as near them as I can get.  There are some things you can deduce from that statement – Mr. Bond is a serious gambler which means he studies the game and reviews his actions after the playing. Also in gambling there is an large element of luck – when the chances are even it means as close to 50% for either a win or a lost. If the odds are two high, it is time to fold. It is important to know the difference.

Linking to dividend paying stocks, when stocks pay a dividend you are protected on the downside for the stock price will move up and down. One of the reasons the stock will tend to move up in the long run is the company is profitable and eventually the market will value profitable companies at higher valuations when compared to the majority of companies on the exchange which have more hope than profits. If you are going to gamble on the stock market, be like the character of Mr. Bond and know the risks and returns going into your investment.

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

Detroit, Michigan was in the news a couple of weeks ago for its financial problems as it declared bankruptcy. Detroit is a city the author has been and similar to anyone that has read a car magazine over the years, a must see city. The auto plants have mostly left the city and moved to the suburbs or to other states, but Detroit remains the headquarters of Ford, GM, and Chrysler and is also home of the Tigers, Wings and Lions. A city like Detroit has things going for it, even though much of it feels off limits during the night, but during the daytime – there are parks, magnificent old buildings and sections of the city everyone feels comfortable in. In addition housing and commercial rent are low which attracts people, not enough people to replace the people who have either moved to the surrounding area or left, but inexpensive commercial rent means hope for the future. Many start ups including those in the arts are to be found.

Linking to dividend paying stocks, often we think of government as institutions that pay their bills and are stable, as shown in the case of Detroit most of them are; but even a city can file for bankruptcy and hopefully emerge better when it comes out. Just because a dividend paying stock has been paying dividends, you must ensure that management is meeting the needs of the buyers of its goods and services. Processes change, sometimes for the better, but they change and if the company does not change with the processes, then the profit begins to shrink and so does the dividend. For companies that have paid dividends for decades it is a testament to the quality of the people who work there or the degree of monopoly like conditions which exist.

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

Each of us are in different situations, ideally after Labour Day you have various savings and investments. There are plenty of self help books out in the marketplace and all of them have similar suggestions – rule your money or your Money will rule you. Each of us is similar but different, however Gail Vaz-Oxlade in Money Rules, Collins, 2012 offers 261 Rules to ensure you rule your money. It is interesting, each year the quality of the people graduating gets higher, but similar mistakes are made. There are very compelling reasons why, each year the consumer industry gets better and it exists to please us. Agencies or institutions which many people thought would help them turn out to make more money selling their products then not having access, with the banks the prime example. Generations ago, the infrastructure of the bank made it hard to access your money which meant you did not. Now as long as you can make regular payments, the banks have a vested interested to give you want you want and more. However no one wishes to go back to the early years.

Gail’s rules include to stay out of debt, paying yourself first and living a lifestyle which you can afford. If you can do that simple but complex thing, you will rule your money. If you can not, the interest will rule you and at some point has to be paid, for it all likelihood the world would not end tomorrow. If the world is not going to end tomorrow, then calculating your true interest cost before you sign is important. Often times waiting for 6 months or a year, is worth it because then you know you can and will pay off the outstanding balances. There are many companies waiting for you to miss a payment to hike interest rates and then you will have paid double or more for what you bought.

Linking to dividend paying stocks, one of great things about dividend paying stocks is a stream of income, if the company is profitable and has increased its dividends over the years. The money can then be used to buy more stock or something or just give you options to consider. When you have options you rule your money, when the money goes before or just after you receive it, then you have less options to spend your money. Just remember the best and most exciting show is nature and people watching its free outside your windows.

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

In  urban centers there is a wonderful resource called the Library. The library is a magnet for kids and young adults, but sometimes as people get older and make their own money, they forget about the library. The library in my urban area has programs which are free and only cost the time to go and participate in them.  Also in many urban areas there is a post secondary educational institution and while most aspects are oriented to the students, there are free or cost recovery lectures. If you live near one, check it out for your interest and part of your tax dollars go to these institutions.

Linking to dividend paying stocks, all companies which make money have people going through government grants or tax incentives to assist their companies. It makes sense for you to do the same on a smaller scale. Your tax dollars help fund the library and post secondary institutions and you should benefit directly and indirectly. Similarly, with dividend paying stocks you benefit directly from the dividend. If the dividend is not being paid or in danger, switch companies, you can move back if desired. Use the resources near you which are easy to access, it will make your life easier and can be interesting at the same time.

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