Donald Keough a former President of Coca Cola wrote a book called the 10 Commandments for Business Failure, Portfolio Books, 2008.

Mr. Keough had many wonderful phrases in the book, one is Can the Sofa be Moved?

In many homes, one of the pieces of furniture is the sofa. It is located in the living room and when it was first located, various viewpoints on the layout of the room were tried and the sofa was placed. Years later, except to clean underneath it, the sofa is rarely moved. The sofa maybe in the perfect place for the room and there is limited reason to move the sofa. However, the fact is in most homes the sofa is not moved.

Connecting to dividend paying stocks – the first move was successful and given the usage, it has proved to be successful. The issue maybe given changes to the technology in the room, is the sofa still in the right place? For example, my parents’ TV was a couple feet wide which limited the location choices, now with flat screen TVs, the TV can be in a variety of locations. It is my belief, Mr. Keough was using the sofa example as one that everyone can understand – what was the underlying assumption made when the sofa was placed? and even though the sofa can be moved, how often is it? What is the underlying assumptions for the business plans of the stocks that you own. If the plans are still valid, then nothing has to be done, similar to not moving the sofa. If the plans have changed over the years, sooner or later something has to be done.

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

Donald Keough a former President of Coca Cola wrote a book called the 10 Commandments for Business Failure, Portfolio Books, 2008. The numbers are correct in 2008 as well they will be in 3008. The second 5 commands are:

1. Don’t Take Time to Think

2.. Put All Your Faith in Experts and Consultants

3. Love Your Bureaucracy

4. Send Mixed Messages

5. Be Afraid of the Future

6. Lose Your Passion for Work – for Life

Coca-Cola is a large organization and similar to large organizations, it does not take long before running into many of the commandments. Not all of them are wrong, but to a degree they can be. Asking consultants their opinions can be a very a good thing, not making a decision based on your understanding of the business is not a good thing. Consultants have two purposes – one to give an understanding to the problem and second to call for more research, because there rarely is a perfect answer and to give them more consulting work.

Bureaucracy has a valid role to play, however if the procedures need to do something very basic become cumbersome, and they can be, something needs to change. Are the rules and procedures helping enhance the customer relationship or hindering it?

Many organizations send mixed messages, they suggest one action for all to follow and then reward people for other types of actions. Eventually everyone will determine, what behaviours the company rewards is the actions the company will receive.

Lose your passion for work and life can be the most serious of the commandments. You work in the industry for a reason. The industry has ebbs and flows and over the years you have developed relationships in it and believe the industry makes the world a better place. For many years, you have consider how to enhance your company and when you lose your passion, there are two choices one re find it or move to something you are passionate about.

The above commandments are more internal than external, which is why reading or listening to management’s views is important. Do they follow some or more of the commandments? What is their focus?

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

Donald Keough a former President of Coca Cola wrote a book called the 10 Commandments for Business Failure, Portfolio Books, 2008. The numbers are correct in 2008 as well they will be in 3008. The first 5 commands are

1. Quit Taking Risks
2. Be Inflexible
3. Isolate Yourself
4. Assume Infallibility
5. Play the Game Close to the Foul Line

Each of the above and part two tomorrow are designed to ensure you do all the things you wanted to do when you were starting out. Although owning dividend producing stocks suggests you want the status quo, it does not mean the status quo will remain just because you want it to. Things change and so do the basic assumptions – in the world of Coca-Cola the 6 oz bottle was a blessing and a curse. It was successful and people began to believe the reason the company was successful was the bottle. When Pepsi introduced the larger containers you see in the grocery store, it was a revolution and something it took Coke a great deal of time to adjust to. When they finally adjusted, many of the long standing beliefs they had were changed – from a personal stand point – it was the drink, not the bottle. Coca-Cola is back on top, but it has gone and will continue to go through a variety off trials and tribulations. Mr. Keough talks about the bottling divisions, when they were set up the regions was where a horse and carriage could deliver. Did that apply in the 1950’s, 70’s? If you owned a franchise would you want to give it up? Eventually the issue was sorted out, but the concern is always what is the underlying assumptions of the business? are they still relevant? what would need to be changed? As dividend holders, we have to ask the questions to ensure the dividend is safe.

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

All companies that earn money have a yield. If you buy a bond, there is a yield. When interest rates go down, for example from 4 % to 2 %, if you owned the bond at 4% your yield went up. If the interest rates go up and you own a 2% bond and rates go to 4%, your yield went down. It is the same process with dividend paying stocks – if and when the stock price goes down, the yield goes up. If and when the stock price goes up, the yield goes down. The words if and when indicate the action will happen for no stocks that pay a dividend has a static or flat stock price, there will be activity everyday. The questions is what is good? and when do you need to look at other variables?

A good measure is to compare the entire index of the exchange you are buying versus your stock. For example if the index is at a 3 % yield and your stock is yielding 6% or double, this is a signal to ask why is the stock price of the company you own going down, for the yield has gone up. That does not mean you have to sell, but you have to consider if something has changed in the reasons you own the company. It can be the company is dependent on higher commodity prices and prices have come down. If that is the case you ask when will the commodity prices go up? If the time period is short, then you may do nothing.

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

When you receive dividends from a dividend producing company, one of the many equations to consider is the payout ratio. The payout ratio is how much of the company’s earnings are being paid out in dividends. In an ideal world – 50%, but for companies that have their earnings regulated similar to utility and pipeline companies – 80% is good. As a dividend buyer you believe one of the best things a company can do with its money is give money (dividend) to its owners or shareholders..

When you look at the payout ratio one of the the first questions will be is the ratio sustainable? will it continue for a long period of time or at least as long as you are intending to own the shares? There is never a perfect answer, except in retrospective. The company could have lower earnings for a year, the ratio goes up, is that bad? will it change the following year? what can management do to decrease the level? and a host of other questions that will need to be answered. If the payout ratio is sustainable, then as long as you know how the company makes its money, you have little worry and you can move to other ratios and enjoy the dividend.

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

Everyday a different holiday brochure comes in the mail or newspaper or in the inbox. Each year the quality goes up and if the quality is not high, even though the product maybe wonderful, questions would arise. The magazines come at this time of the year because the reality is although people can shop 7 days a week, 24 hours a day, the majority of shopping is done now or the retail stores make the bulk of their profits in the holiday season. During the holiday season, the generosity of people to one another allows the consumer society to function.

Linking to dividend producing stocks – if you own a retail stock or two, one of your chores is to ensure you visit the retail establishment you own. When you go, do you see lots of shoppers carrying bags? are they spending money at your investment or do you need to do further research because you sense something is not as good as it was. You may need to do research because it your area it is not great, but in other areas where  retail locations are located things maybe doing very well. If you own a retail investment, it is a great time to go shopping to check out your investments and ask the same questions management asks – how is it doing? who is it appealing to? are they reaching their target market? could they do better?  The answers lead to other questions and a conclusion.

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

Just about everyone has more than one pair of shoes, some people need closets for theirs. When you have more than one pair of shoes, you tend to have a favourite. If you are remotely similar to me, you do have a favourite. One of my favourites is an old pair of loafers than work well in the winter as slippers. The other day, it was noticed the shoes needed repair, in an earlier stage they would have gone to a shoe repair place. However the repair bill would be worth more than the shoes are worth, but the shoes are still wearable and have lots of goodwill and wear in them. A do it yourself repair of a  a stitch or two was done, to make them last for another 6 months and maybe even longer.

Linking to dividend producing stocks when something works, why change it drastically? Although it is important to examine if you are getting what you expect  and if you are, it can be good. In a recent study dividend producing stocks went down less than the market index, bounced back sooner and did better than index in an up market. The reason is the dividend payment provides ensures a minimum stock price, and when the market goes up, the profit making stocks always go up first. What you miss is not the  stock that goes up 4 times or more in a short period of time.If you can live with losing less and gaining more, then dividend producing stocks is something you should have your money in.

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

In the urban city where I reside, the city is built by the lake and on days when the temperature goes up, it is wonderful to go for a walk by the lake. While down at the lake, a stop was required at the park benches, it this case the view was an inner harbour protected by a breakwater. Given the temperature was expected and did go down fast there was a wind in the air. The waves on the lake did not seem to be high, but when they hit the breakwater, a few rolled over the top. It was a pretty picture and  showed the power of water.

Linking to dividend producing stocks – most of the time, the stocks are well protected by the breakwater known as competitive advantage. But all is not perfect, the water inside the inner harbour is affected by the waves in the marketplace. Dividend producing stocks have the advantage that they should be more secure with what happens in the market. However the breakwater over time, perhaps a long period of time, will be breached and something will change.In order to ensure competitive advantage remains, you need to evaluate your holdings every once in a while to see if the breakwater is in solid shape.

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

Last summer, the writer went by a public park and the flowers consisted of what many would consider weeds. Weeds have value, the monarch butterfly only lays its eggs on milkweed, weeds produce flowers (usually smaller ones) and there are many valuable reasons why weeds exist, however breath taking beauty is not one of the attributes. Last summer my thoughts were does the public park not have the money to update and make the passed area a showcase?  The area could easily use traditional flowers to add a wonderful dimension to the area. A few days ago, I was in the area and passed by the same spot with the sun shining. The green weeds had turned to the colours of yellow and red and looked very good. Perhaps this was the effect the people were trying to achieve by design, although I would be surprised.

Linking to dividend producing stocks – if a stock has a long history of producing dividends and their model is working well, then perhaps it does not need to be changed. Many years ago, the writer worked for a dividend producing company that from my standpoint needed a great deal of change. The company had all the correct products but was not good at selling them. Those that knew about them were very loyal, but those that did not know, would likely never know (the company has since been sold to a bigger dividend paying company which does know how to sell). Sometimes it is best to see the whole cycle or picture before you judge.

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