If I’m going to be critical of Total SA for giving up one of its competitive advantages (namely, selling off specialty chemical business lines that act as offsets to provide profits coming into the Courbevoie headquarters when profits are low), then it is only fair that I acknowledge what Total SA investors are getting as the benefit of the bargain for giving up some of its niche jewels.
First of all, Total SA investors get to continue collecting a dividend that remains largely intact. The highest dividend that Total SA ADR’s ever generated was $3.28 back in 2009. During the oil crunch period of 2014-2016, Total SA investors got to collect $3.16 per share in 2014, $2.73 per share in 2015, and an estimated $2.75 per share in 2016. It’s in quite the dividend growth line in the sand that you get with ExxonMobil, but it’s also a higher yield … Read the rest of this article!
One of the reasons why dividends can improve corporate governance is because they encourage restraint. If you are running the show at Procter & Gamble, and you know that the corporation has raised the dividend every year since 1963 and already has a commitment to paying out half of its profits to shareholders, then you feel some baked-in pressure from shareholders to do something intelligent with the retained earnings to make sure that the streak doesn’t end on your watch (e.g. CEO Jeff Immelt said cutting the GE dividend was the worst moment of his professional career.)
But that shareholder pressure can also apply in reverse. Especially in cyclical industries, there can be a shareholder pressure to keep the dividend high even if it means borrowing debt at high rates or selling off attractive pieces of the business. The consequences of this decision aren’t felt for at least five to … Read the rest of this article!
I have made no secret of the fact that I do not admire the aluminum business model in general and at Alcoa, specifically. It is not an insight that I can take credit for. A few years back, I stumbled upon the Credit Suisse century in review white paper that discussed the best and worst investments that could have been made between 1901 and 2012. It taught me that vice is much more lucrative than even the people who know those industries make a killing give it credit for–receiving tobacco and beer dividends for decades on end has been one of the surest ways to increase your standard of living through passive investments.
But it has also taught me to avoid the shipbuilding and aluminum industries altogether. Silence of the Lambs has gotten nothing on the horror these two sectors have inflicted on their shareholders over the years. With aluminum … Read the rest of this article!
Ever been curious for some statistical data on how political connections influence insider trading and stock performance in highly regulated industries whose regulations are informed by the politics of the moment?
Well, Professors Jagolinzer (U. of Colorado), Larcker (Stanford), Ormazabal (IESE), and Taylor (Penn) sought to do just that, and have released a paper concluding that insider trading from finance industry insiders didn’t predict future stock performance before the financial crisis or during it prior to the launch of the Troubled Asset Relief Program (TARP). However, during the disbursement of TARP funds, the insiders in the financial industry that were well-connected politically were able to make trades that did indicate informativeness of future events, suggesting that regulators indicated which banks would be the survivors and the bank executives invested heavily when the stocks were trading at liquidation value.
I attach parts of the essay that help state their case, and … Read the rest of this article!