In every investment, there can be and is a great deal of financial analysis before a recommendation is made. Even with all the information, in the end the decision to buy is a judgement call. A key component for dividend paying companies is the cash flow.  Hopefully the dividends over the years are stable or increasing and a relatively simple equation is called the Stock Price to Cash Flow (P/CF) .This ratio evaluates the price of a company’s stock relative to how much cash the firm is generating. The reason to look at the ratio is it is difficult for management to manipulate the cash flow by aggressive legal accounting or depreciation methods. Thus it keeps management on the correct track which is a good thing.

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

Anyone who lives in an urban setting, has likely been on an elevator at least once. If you live in the city and use an elevator on a daily basis you begin to have expectations of elevator service. The writer worked in a variety of settings including one building where the standard was less than 30 second wait from pushing the elevator to getting in. Other buildings have considerably longer standards, evoking memories of the old movies with an elevator operator, they were slow but reliable.

To bridge to dividend paying stocks and time horizon. If you expect to have riches overnight, once it a while it happens, you maybe in for a long elevator wait. If your expectations are for an extended time horizon with investments in good companies which have a habit of increasing their sustainable dividends, then the wait is worth the ride to the top.

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

Similar to many people, the writer reads a number of on line publications in the morning and then sometimes there are links to others. One link was to the Globe and Mail in Toronto, Canada. Ian McGugan at imcgugan@globeandmail.com worked with Craig McGee of Morningstar to find US and Canadian stocks that pay dividends and are relatively inexpensive given their growth and dividend rates.

To make the list the stock had to have the following criteria: a market cap greater than $ 1 billion, a PEGY Ratio (the price of expected earning ratio divided by the sum of its growth rate plus the dividend yield) the ratio is less than 3; an expected dividend yield greater than 3%; a positive 60 day estimate revision; a positive 5 year earnings growth rate; earning variability in the top 75% of the database.  No more than 4 stocks from one sector were chosen.

What you can see is a great amount of potential with limited risk. When you look through the below names, hopefully some you are aware of, so not, but start with the ones you know and to see if that is a good place for you. Hopefully you can see dividend companies offer plenty of choice with lower risk.

Dividend stocks that have shown profit growth

All over the world, for generations people have left the rural areas to live in cities. Cities offer some of the most exciting challenges with limited physical activity and a chance to have a greater opportunity. The writer is included in this grouping, when people come to the cities, they are looking for methods to gain greater income than existed in the country. Everyone around the world would love to win a lottery, but that rarely happens, although winning sometimes does happen. For the vast majority, the rules of living slightly below your income in order to have savings, investing the savings in dividend income stocks and having that reinvest for a number of years is a tried and true method of success. It can be done in the rural area or the city, but time and patience and investing in dividend paying stocks has worked

A recent example is for a Canadian example, of investments in the largest 5 banks. Similar to most countries around the world, the biggest banks of the country tend to have near monopoly status, but compete against each other, as a result it would be exceeding rare for them not to make money. (the rare instances is the 2008 lost of money on real estate securitization around the world).

This chart from John Heinzl writing in the  Globe Investor jheinzl@globeandmail.com shows with minimum risk, you would have received good returns.

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

The writer was reading a book called Buried Treasurer (Travels Through the Jewel Box) by Victoria Finlay, Sceptre 2006. The concept of the book is looking at your jewelry box and asking where do those gems come from? what are the stories? why are they considered important?

In a previous post, the author went searching for the origins of a ring she had inherited from her parents. The country where the gem came from, the gems can be found either digging in the ground (underground mining) or panning in the rivers for the jewels (ie panning for gold in California or Alaska). The more romantic version is panning in the rivers because the jewels come from somewhere in the mountains brought down by the rivers – which is where the author’s gem came from It is also part of Sinbad the Sailor stories.

To bridge to dividend paying stocks, in the above case as long as the panning operation is a small and medium sized one, it will provide returns to the operators and that is good. To sustain a larger amount of people, the underground mining has to be in full operation. Both methods have their advantages and disadvantages, including different  anticipation of expected returns. When you go looking at potential companies to own, what is your expected return? having too high rules some things out, having too low leaves everything in and it is hard to make a decision.

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

The writer was reading a book called Buried Treasurer (Travels Through the Jewel Box) by Victoria Finlay, Sceptre 2006. The concept of the book is looking at your jewelry box and asking where do those gems come from? what are the stories? why are they considered important?  Nestled within the chapters is a delightful quote

the author is writing about her ring –  it is an ordinary gemstone, yet like most ordinary gemstones it has a good story to tell, if you go looking for it.

In the book, the author goes on journeys to discover the stories behind the jewels and there are many many stories. Every jewel came from somewhere – how the earth formed the jewels, what place was the jewels mined, who cleaned and cut the stone all have stories behind them. Did you ever think about the jewels you have seen?  The story of Cleopatra {a movie is being made} should be quite a tale for she was a jewel and fashion trend setter. Cleopatra and Liz Taylor had many similarities. Back to dividend paying stocks, most of the companies are only extraordinary in the sense they pay a dividend every year, which is quite a feat. Each company has a story to tell, do you ever listen to it? There are many stories being told if you go looking for them. If you look you can be pleasantly surprised.

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

The writer was reading a free newspaper given to transit riders and there was a colourful picture of Japanese children playing on a crochet playground made with yarn. The size of the playground comprises of thousands of pieces of nylon or a ton of yarn. It is possible that your closest city could see something like it in June, for every year there is a International Yarn-bombing day. If the colours are similar to the ones displayed in the picture, this is one type of bombing that everyone would like.

Besides an interesting picture, the link to dividend paying companies is the earliest companies in the industrial revolution were in the wool industry. Are there companies that are still in the wool industry making money? yes. Do very many exist in the G8 countries that have manufacturing located in that country ? no.  Companies need to evolve and will change, although the desire to receive dividends every year has never changed. What companies that can pay dividends and will pay over time changes. That is why when a company decreases its dividend, it is a very good time to seriously consider moving your investments to a company that is not decreasing their dividends.

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

Many corporation over the past couple of years have built up cash reserves, some Bank Governors are suggesting, the companies should either use the cash in their business, make acquisitions or return the money to the shareholders. The perspective for Bank Governors is if one person has money in their account it is good, because the rest are spending., If everyone has cash in their accounts, who is spending?

With a dividend paying company bias, the sentiment of returning the money to the shareholder sounds terrific. Much of the world is a balance – we try to have work – life balances, companies follow the same principle. In the low interest rate environment we are in, having debt at low rates is a good thing, having too much debt is nasty. Generating lots of cash is a good thing, searching for opportunities is a good thing, there should be a lag between searching for opportunities and spending the cash but what is the correct amount of time?

Ideally, companies should be searching for opportunities all the time. The company should have a reasonable idea of where it would like to grow, if the price is right. One presumes, slowly coming out of a world wide recession, if the price is not right now when will it be? If the answer is I do not know or maybe in the future, the writer is in favour of returning cash to shareholders.

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

If your top priority with the stock market is to buy stocks with the greatest yield on your money at some point, you will be burned. If your investment strategy is to examine the dividend paying companies by their highest yield and buy them on that strategy, you will lose some of the time. The top reasons for losing money by chasing yields is not asking: is the yield sustainable? or will it continue? and why will it continue?

There are plenty of good solid companies which pay dividends and are sustainable  – one of the easiest to look at is utility and pipelines. These groups fall under government regulation which means higher barrier for competitors and the regulatory body gives the companies regular approval to raise rates. A great example of a good pipeline is Kinder Morgan.. The company is well run, recently grew and is worth looking at. The company was the basis of Enron before management thought selling fiber optics was a faster growing business and sold the pipelines to Kinder Morgan.. Enron went bankrupt, the owner of Kinder Morgan is a billionaire. For the foreseeable future we will be using oil and natural gas to run the economy and someone has to move the oil and natural gas from where it comes out of the ground to the where consumers can use it.

Generally if a company has a high yield for their dividend payments you cannot buy and hold, if you buy, you have to watch every quarter  because there is a reason why the yield is high. The market does not believe the business model the company is using is working well. The best example is the companies that produce the Yellow Pages -many people grew up using them, but do they now use them? Is there a need, probably, but it what form and how much can the company charge? Can some money be made yes, will money be lost both on the dividend and the stock price yes. Take your chances or better buy companies that have a long history of paying out dividends, have a dominant market share, and healthy financials If you buy those you can buy and hold and enjoy the dividends..

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