The headlines of the advertisement tell us there is a 4 day sale or 2 day sale or limited time offer. We are interested. We read the ad, and sometimes even act on it or want to act on it. Was it a good sale? at least one item was a great buy, the others which the store hoped we also bought, likely no better or no worse than a store we would normally shop at. The sales people and advertisers know we become very interested in the words of limited time offer. It makes us think we are special (we are), the company is lowering its margins to allow us to save money by not spending as much money and that is a good thing. The margins being referred to are every firm has a cost and then they add their margins. When the sale is on, the sale is on their margins, not the entire price of the item. An example is 3.00 cost, 100 % markup = 6 retail. Sale is 50% off which means 3.00 cost plus 50% markup = 4.50 retail.

Linking to dividend producing stocks, the opposite of limited time offer is the advantage. If you own the shares, the company paying the dividends deposits the money into your account. There is no limited time offer, but an expected dividend payment every year. Over time as the company continues to earn money, through continued dividend payments, the stock price rises. In the short run fluctuations happen, in the long run, more money is in your account.

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

Just about every group or organization has a convention often at a hotel with guest speakers, and more important to thank people for their work within the organization. Last week the author was at such a convention for a service organization which has been operating for close to 100 years. For about 100 years, the organization has been meeting at a convention more or less the same time each year. In a few months, the beginning of next year’s convention will be planned, in all likelihood at the same hotel. The organizers will go through the comments and determine if the attendees continue to like the hotel and slowly the programme will come together.

Linking to dividend producing stocks, similar to the convention that happens every, the key is a dividend is paid every year. There will be challenges, there will be some changes for the company as people rotate through the company but the dividend needs to paid. There are a few stocks on the exchange that have been paying dividends for over 100 years, not surprisingly if you own them, your wealth would have increased. A company that has paid dividends for a long time has low risk and a high reward making it a great combination.

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

In the middle ages, castles (monster homes of their day) were built for defensive purposes. They are located on high ground giving them a commanding view of the area and sometimes a moat was placed around castle for extra protection. The moat was not the lazy summer river to take a swim in, but more often a giant septic tank. If you have seen people emptying septic tanks, they take care not to come into contact with the material. Anyone trying to swim across the moat would likely get a disease or die.

In investing terms, a moat is about competitive advantage over the competition. Every year, the competitive nature of companies gets closer as technology allows consumers to have greater choice. However, some companies because of the industry they are in have a built in advantages: be in government regulations, access to raw materials, inventory management, brand awareness, regional strength, or something else. If a company has a strong moat for the competition had to cross, the company has a built in advantage and as long as it stays, making money can be routine. Once the moat is crossed, margins and profits fall.

Research firms are constantly trying to determine the moat and the effectiveness of it, among the firms which rate moats is Morningstar which gives a rating to all the companies it follows. However, just because a company has a moat does not mean it will last and the information should be used as one more tool to look at when researching companies. Typically, dividend producing companies have bigger moats than non dividend paying companies and that is one of the reasons you want to own them.

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

All large organization have rules or principles which suit their purposes. Most of the time, the principles are the ones that should be tied to the organization. Sometimes people tie their organizational powers to a rule which by any degree of common sense  brings up the age old question of what were they thinking? comes into play. Because the client base does not buy into the policy, defending the principle is only digging the hole bigger.

From the book The Kidnapping of Edgardo Mortara by David I Kertzer, Alfred A Knopf, New York 1997, an example is the Edgardo Mortara case of 1858 in Italy.

All large organizations have many supporters and detractors, hopefully there is always more supporters. When something goes wrong, the detractors who have some issue with the company, come out of the woodwork to add their voice to the concern. Soon people are talking about many types of issues, few that deal with the original concern. In the case of the Mortara case, anyone with an issue against Catholics were jumping in to lend their voice of support. With social media, issues are more pronounced, but they tend to follow the same patterns since the invention of the printing press.

Linking to dividend paying stocks, the small issue can become convoluted, but how does the company react and deal with the issues? If you gather 10 people in a circle and whisper into the first, by the end the sentence will change, the issue will change and maybe even the story will change. During those changes, the stock price maybe affected before what is considered normal is achieved. The only method to combat the campaign was for the company to try to do it right the first time. By being good corporate citizens and living up to its principles and keeping common sense, the company maintains and increases it goodwill. At some point in every company, that goodwill will be used. One method is to ensure a level of openness that allows for questions to be asked and answered.

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

All large organization have rules or principles which suit their purposes. Most of the time, the principles are the ones that should be tied to the organization. Sometimes leaders tie their organization to a rule, which by any degree of common sense, the age old question of what were they thinking? comes into play. Because the client base, does not buy into the policy, defending the principle is only digging the hole bigger.

From the book The Kidnapping of Edgardo Mortara by David I Kertzer, Alfred A Knopf, New York 1997, an example is the Edgardo Mortara case of 1858 in Italy. A 6 year Jewish boy was taken from his parents, because the Catholic church said by the virtue of a maid saying the rites of the baptism, the boy was transformed from a Jew to a Catholic. (as opposed to the normal baptismal ceremonies which happen in the church). This baptism gave the church the authority, through the Inquisition department to resue the boy from his parents and relocate him to a Catholic home in order for the boy to be raised Catholic. The Pope in 1858 was a 100% behind the decision. Soon the world knew about the continuing policy and was against it. Eventually, the Pope ran out of supporters and one of the many outcomes was the unification of Italy. The world knew because the Jews in Italy were segregated in ghettos from the Catholics, they had to and did developed social networks, which were used to tell the world.The Catholic Church had felt there were above reproach and had used their various sources to tell their story, but many did not buy it.

Linking to dividend paying stocks, often times the companies that are paying dividends are large and because they have been successful, always think they will be. Those that think they will always be successful, become arrogant and alternatives in the marketplace develop. Policies which make common sense at both the policy and implementation level keep customers. When the two are different, the seeds of doubt and the beginning to look for alternatives happen. If you own shares in a company and have a relationship with it, you will be able to tell if the two policies are in tune. Defending bad policy whether it was 100 years ago or today, is wasting a lot of resources in a never ending hole.

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

Yesterday, the winds brought the southern air to the area where my home is located which made it seem like a summer day. Summer days are for spending more time outside – can take the slow road home, enjoy a patio or a walk in the park. While in the local park, the squirrels were active, partly from the dogs chasing them (but never catching them), and partly from jumping between the trees. When you consider a tree, the thicker part of a branch is close to the trunk and as the branch goes out, it is thinner. In order for the squirrel to jump between the trees, it has to go to the thin part and leap to another seemingly thin part of a branch. Not sure how it knows which branch to go on and when not to go on a branch, but the squirrels did not fall.

Linking to dividend producing stocks, similar to the squirrels leaping between the trees, there is risk. There are not things that you may not know, however there are also many things you can learn first. If you focus on the things you do know, your decision is much easier. How does the company make money?  Has the company consistently made money for a number of years? Is the dividend stable or increasing? What competitive edge does the company have that allows it to make money? In our economy there is always an alternative, what are some of them? Having answered those questions, which will lead to others and it will help ensure when you jump  you will land safely.

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

There are many ideas in the world of investing and some are reported in the financial press. It is up to you to narrow the field to see which companies fit into your portfolio. One method to being more right with dividend producing companies is to ensure you start with those making money and have the possibility of raising their dividends.

In the April 16th edition of the Globe and Mail, 20 possible companies that may raise their dividends were profiled. Ian McGugan (imcgugan@globeandmail.com) wrote:

Earlier this week, as the author was coming to an intersection the light changed to yellow, which meant as a walker and given the width of the street, my forward progression was stopped. An added attraction was the sun was shining, making the wait more comfortable. At the same time, the driver of a sports car revved up its engine, pushed down on the accelerator and made the turn as the light changed to red. Since the act of turning was down safely, the issue is should the driver have stopped or attempted to turn? In all likelihood, many of us have turned our vehicle on a yellow light, and at times it seems to be the only method to actually make a  turn. However, in many of those instances the vehicle is generally stopped in the middle of the street and the yellow allows for space to open up. In this instance, there was plenty of time to stop.

Linking to dividend paying stocks, the driver of the car given the ability of the car to accelerate quickly, likely has driven through many yellow lights. Both the ability of the car and driver allow it to happen, at times the police may give the driver a ticket. but that is a risk factor the driver is willing to take. For dividend paying companies, there always needs to be the ability to drive quickly or respond to their competition, but most of the time, the companies and their owners stop at the yellow and wait. Partly because they can wait an extra minute or two and partly because the safety factor of the risk-reward system is always higher on the scale. We all take risks, some of them seemingly self inflicted, the question is how often and to what scale. If you fashion yourself as going through the yellow lights, then growth stocks would appeal to you more. If you generally stop at the yellow then a consistent dividend paying stocks that grow over time is a better investment.

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

In one of the coffee commercials,  the actor portraying the founder says, something to the effect of: for the right taste, the beans have to be roasted for the correct time. Patience is important. The commercial goes on to talk about since the founder’s time, that part of the process has not changed. This process is similar to others in the drinks industry such as scotch and wine. Both products get better with aging and the older the scotch and wine is, the more valuable they become. (hopefully we see people the same way).

Linking to dividend paying stocks, the longer a company has paid dividends, the more valuable it is. There are always many challenges and changes in the marketplace, which means for a company to consistently pay dividends means it has a solid revenue base and hopefully a monopoly like position. The ability to pay dividends means the markets go up and down, but there tends to be floor price for the dividend paying  companies. When the price of the stock falls, the yield based on the dividend payments rises, which brings new buyers in to gain a great yield with very limited downside, thus sending the price of the stock up before the growth stocks rebound. When you buy quality, in the long run you are rewarded.

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