Guest post by Lowell Miller, Founder and CIO of Miller/Howard Investments.
Miller/Howard Investments, Inc. is an independent, SEC-registered investment boutique with over two decades of experience managing equity portfolios for institutions and individuals in disciplined, dividend-focused investment strategies.
The human face of dividends
Investors are in a perpetual state of anxiety about the reliability of the information they’ve already received from management. When a dividend change confirms earlier reports, investors are willing to reduce the necessary skepticism that is always a conscious or unconscious factor in their valuation equation.
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If you’re getting cash, that means the company actually made the cash. Whether you as an investor look at it as a certification of the past or a message about the future isn’t that important. What matters is that you’ve been given some proof of the “statements.”
The end result is that an investor can mark up the valuation of the company that increases its dividend because in a world characterized by everlasting tension between promise and certainty, at a minimum the certainty side of the equation has been strengthened.
Anti-dividend philosophies have been concocted by academically trained functionaries who forget that investing isn’t about the numbers that are so easily melted in spreadsheets or “massaged” in investment strategy modeling software. Investing is about a human relationship between someone with capital and someone who needs that capital to make or sustain a business.
Why do investors persist in accepting the projections of managers about the future without taking in some real return from the accomplishments of the past?
The human face of dividends, the true actuality of dividends: you invest money in a business and the business pays you back some of its profits in real time, while retaining enough for sustainable and reliable future growth. You receive confirmation of present success, you receive a return on your investment which is minimally a hedge against future failure of the business, you receive a share of profit which goes to the investor and not the manager (this is only fair), and you retain a position in the business which can bring you more of the same indefinitely.
What strange twist of the psyche would have it any other way?
About Lowell Miller
Lowell Miller holds a BA degree in Philosophy from Sarah Lawrence College, and a Juris Doctor degree from New York University School of Law. He began his studies of the securities markets while still an undergraduate, and for more than 35 years has continuously pursued the notion of disciplined investment strategies. Lowell is the author of three critically acclaimed books on investing, including The Single Best Investment: Creating Wealth with Dividend Growth (Print Project, 2nd Edition, 2006). He has also written on financial subjects for The New York Times Magazine, was a featured guest on Louis Rukeyser’s Wall $treet Week and Bloomberg TV, and is often quoted in such financial media as The Wall Street Journal, Dow Jones Newswires, Bloomberg, and Barron’s.