Tuesday, November 10, 2015

Management - An Untapped Tool for Dividend Growth Investors

Do you have any companies in your portfolio that haven’t raised their dividend in the last year? There are two companies in my Investment Holdings that haven’t rewarded me with a distribution increase in the last twelve months. After one* of my two non-raisers reported record earnings last week, then didn’t raise their distribution, I tracked down the CFO’s email address and asked why the company wasn’t increasing their payout.

Despite being an investor since 2001, and always trying to think like an owner, last week was the first time I’ve ever contacted management of one of my investment holdings. Communicating with company management has never been part of my investment process. In retrospect, this is odd considering the amount of time I spend talking and meeting management of different companies in my professional life over the last eight years. Yet for my investments, I acted more like silent partner, relying on public filings from the company and earnings call transcripts.

My silent partner approach to investing officially ended when I received a reply from the CFO of the company on Friday, one day after my initial email. He explained to me in great detail why his company was not increasing their payout, and how he planned to use the cash instead. Being a long-term investor in the company, the CFO’s answer gave me great confidence in management’s ability to deploy cash in the most efficient manner. It’s a shame the company doesn’t hold earnings calls, since the CFO’s enthusiasm and depth of knowledge would provide other investors the same confidence it provided me.

Even with various security laws limiting what management can disclose to investors, I’d still encourage you to contact management of public companies. In my day job, I’ve been pleasantly surprised by how open management are to at least consider my questions. Even if management doesn’t address a query, sometimes a non-answer speaks volumes to management’s intent and priorities. My experience has taught me that there is absolutely nothing to lose by contacting a company and asking a question.

Going forward, if questions arise that are not answered in public filings, earnings transcripts, interviews, or other sources, I won't hesitate to go directly to the company with my query. Investor relations departments exist for a reason, so why not use them? :)

Have you ever contacted a company’s management to get an answer to your question before investing? What was the result?

* I chose not to identify which of my portfolio companies I contacted since I don’t want to single out a CFO who already has lots of his plate. I respect and appreciate the time he took to answer me in a very detailed and thorough way. 

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