We all know the stock market averages move everyday, sometimes up, sometimes down. This is good because everyday there are buyers and sellers for a variety of stocks, similar everyday in the department store of your choice there are buyers and sellers of goods. Next time you are in the department store, look around is everyone buying the same thing? the answer is no.
The similar thinking happens in the stock market, there are bargains to be had, there are expensive stocks because the companies are doing everything correct for the prevailing sentiment. For example in a low interest rate environment, companies can have extra debt to fund the companies growth (as long as there is the ability to pay for it); if interest rates were to rise and the sentiment is less debt than the companies would have to change their financing program or the market would not like it.

Markets will swing for many reasons (both fundamental and technical), but if you own companies that pay dividends, it does not matter what happens on a day to day basis. You are not selling, as long as the dividends are safe, let the markets swing to the music of the markets.

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

If you even had or in a mortgage, had an outstanding balance on a credit card then you know what compound interest is. On those financial instruments the charges run up fast. Not paying debt makes you richer. However not paying debt may mean you have to miss out on something you like, so what is the best of both worlds. One is to use the financial instruments and pay your debt down fast. The other is on your investments – ensure you get a dividend or buy the stock which pays one consisently. In an ideal world, you would reinvest the dividends for dividend shares are meant to have a longer lifespan and many North Americans are living longer – the emphasis on pensions. When pensions first came out the life span was 71 years, not it is not uncommon to see 90 year olds. We are living longer.

Compound interest is a wonderful device that can be on your side – use it. Dividend paying stocks use it.

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

The writer recently read “The Devils are Here” – The Hidden History of the Financial Crisis by Bethany McLean and Joe Nocera which is about the decline of real estate mortgage securities in the US and the banking crisis. One of the most important lessons to be learned is to question the basic assumptions how the industry you invest in makes money. Prior to the banking crisis, the basic assumption was real estate prices go up (some years more, some less) and rating agencies would not do anything to ruin their reputations of what the ratings mean. There were also other lesssons – the lack of regulations means people will cheat the system, when the “blue chip” agencies operate similar to the rogue agencies, great money will be earned and lost.

The choice of dividend shares is to insulate your self, as much as possible, from the extreme ups and downs of the market, for if a company is not paying a dividend for a host of reasons – this is an automatic sign to leave the market. This action does not mean, you will not be affected, but you will not lose as much as those who ride the stocks up and down and end up with an interesting ride but no money.

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

One of the prime reasons why Dividends stocks are important is those that pay dividends have positive cash flow. Every business needs cash flow to stay in existence and if it does not it, the business is not going to survive. Mature companies made money for a period of years, they are reasonably well estabished, can afford to pay their owners part of their cash flow. It is summer, and the writer sent time reading a book about Sam Zell. Mr. Zell and Equity Properties has been the largest apartment, office, mobile home operator in the US with holdings around the world. Real estate investing is based on cash flow – rent or lease the property and cash flows in the accounts to pay for the mortgage, the operations and management. If you are a sports fan – Mr. Zell owns a piece of the White Sox, Bulls and one time held a piece of the Cubs.

Investing in dividend stocks is about the cash flow – does the business continue to generate the money to pay the dividends?

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

In many cities and towns, municipal authorities have invested money in bike trails along the rivers and lakes, not surprisingly people use them. The other day the writer took a ride along the water and noticed among other things the different types of bicycles. There were bicycles were of different makes and travelling at varying speeds – some were leisurely going, some had destinations to go to and moved quicker and others just were in a never ending race.

To use tha analogy – the speed cyclists were growth stocks trying to gain marketshare with their new and great idea.
The more leisurely – such as the writer’s are the dividend stocks. While the growth stocks are noted, the effort is to maintain a dominate marketshare in order to pay the dividend. The pace is a little slower than growth stocks, but dividend paying companies must use all the resources they can.

Analogies are great for relating, to simplify what is a complex subject and every year gets more even more complex. Whatever subject you relate to, bring investing into that realm and it will help you understand.

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

The writer is biased towards owning dividend funds in the country you live in.

The reason for this bias is to keep up with the holdings. If you buy a mutual fund, it will have a variety of stocks in it, and for the most part you will likely know their names if you buy local. If you look at the holdings and do not know the names, how will you determine if the fund is worth keeping? unless you do a lot of research. Yes it is possible, but will you do it? If you are similar to most of us, maybe not even though the information is close to your fingertips. For example, most of know some large German companies, the German economy is keeping Europe afloat, there is great opportunity in Germany. Unless you have a connection to Germany, do you keep track of the companies? Do you know the economy is structured? the slight differences that exist, which allow the economy to function?

Closer to home, we all have biases from the towns and cities we grew up in. Every area has its Nob Hill, Mortgage Hill, Wrong side of the tracks, etc. When you live in a place you know the areas. It does not mean that things aare better, the people who live there are any different, it just means we all have biases. We have all seen the United Nations Building in New York City either in person or on TV, did you ever notice one side has smaller windows than the other because the neighbourhood changed. When the UN Building was built its neighbour was a giant stockyard or cattle pen – it no longer exists but the windows do. Things change the biases come later.

The point of the above is those buying dividends companies in the country you live in allows you to stay familar with the companies in the portfolio. You are buying for its dividends not to sell the stock tomorrow or next week or next month, unless it stops paying dividends. If you follow another country easily and often than buy another country. There are great opportunities in every country where there are people, but most of us do not easily follow other countries. Many of us tend to have biases to our local area, afterall that is you live.

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

Similar to most people in North America the writer was in a grocery store to buy food. There is and was a vast selection of food offered, the grocery store has to appeal to a large amount of people. On my list was things I need, given the heat ice cream was there but is it a need or a want?

In the mutual fund world, where many people start investing there is a vast number of funds offered. The writer has a bias to keep it simple for the majority of people – two types of funds are needed. A dividend fund in whatever country you live in and a monthly income fund.

The bias is understanding how the dividend fund operates, the owner of the fund will look at their holdings and see how the managers are doing does the company pay their dividend or not? yes – can own. no – sell the holding and buy a company that does. If the fund company is not doing its job get out of there fast! In keeping the understanding simple, means the investment decisions from the universe of companies that pay dividends and to select the ones that fit into the portfolio, noting the majority of stocks are bought for growth or increase in stock price and do not pay dividends. The fees to select and maitain such a fund should be less than an equity fund. Less fees saves you (the consumer) money and you will like it, the company may not be it but it is your money.

Similar to the grocery store, as the reader examines the funds ask what do you need – in the writers opinion the only thing most people need is a dividend fund and monthly income fund. The others can be bought after a person has acculumated enough to generate a monthly amount you could live on. Similar to the grocery store, there is a vast amount of food in it, do you buy everything in it? or tend to staples first and once in a while try other foods? Why would investing be different?

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

I was reading a medical newspaper and the President of a health care provider talked about needing to focus on transitions – the handoff between one level of care and another and to ensure care remains high. It is easier to say to to do, than to actually do it. The writer’s experience is it all depends on if the health care provider likes the patient, if they do better transitions result.
In the dividend world, the focus is besides paying dividends, is the company raising them? Recent reports state in general dividend payout ratios are rising, which is good. Given the focus on if the amount rises or stays the same, the transition is easy if the opposite happens – dividends go down. If dividiends go down the transition to companies that do pay should automatically happen. While the selection of the appropriate company(ies) remains difficult, the transition to keeping or moving your investment is easy to do.

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

Dividends paying companies, unlike growth companies are non sexy and that is the way investors like it. What do I mean by this statement – the sexy segment at the moment is the smart phone or iphones. There is high demand, many people are moving to buy them however the problem for an investor is margins are low, and unless the users use in a increasing amount of data, revenue growth is going to slow down. Yes, money is still to be made, but it is a tough competitive capitalist market. The type of industry consumers love, but investors want to love. However in all parts of the economy, there are companies that consistently make money year after year, as long as reasonable decisions are made by management and the maintance of their facilities are done. These companies are not sexy to the consumer world, but to investors – a good margin, profitable business paying consistent dividends or ou!la!la!

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