PowerTrend Brief: Collecting Investing Tidbits by Talking to Company Leaders

My preference for speaking directly with company leaders pays big dividends. I wrote last week about my recent participation at the Las Vegas MoneyShow, and I shared that I served on a number of panels and hosted several others as well. During the last few MoneyShows, I’ve become the go-to guy for hosting the public company panels, and I’ll be doing so again at the San Francisco MoneyShow this August. If you haven’t seen one of these panels before, it’s where a member of a company’s management sits with those from other companies and I lead them through a line of questioning. We also take questions from the audience.

I have to admit these are my favorite panels. It may be because of my history as an equity analyst covering a number of industries and even more companies. During those two decades, I spoke with numerous members of management, from business group leaders up to the CEOs. In each of those conversations, I found at least a few useful investing nuggets that I could put to work — the key was asking the right question or set of questions.

Now, you’re probably wondering if there were any such nuggets revealed during the two public company panels I hosted at the recent MoneyShow.

I can safely say there were more than a few. Let me share some of the best with you now.

Over the course of the two panels, featured companies included American States Water Company (AWR), BBVA (BBVA), Allete, Inc. (ALE), Royal Dutch Shell Oil (RDS.b), American Water Works (AWK), Brazilian electric company Companhia Energetica Minas Gerais or CEMIG (CIG), South African-based energy and chemical company Sasol Limited (SSL) and shopping center real estate investment trust company Kimco Realty Corp. (KIM). As you can imagine, with a few hours and given the diverse businesses among those companies, we covered a lot of ground.

Each of the presentations was upbeat, given good growth prospects rather than too much hype. Because I was running each panel, I did my best to discourage the bombastic statements in favor of what the audience should know. What I found encouraging from each company was the progressive dividend policies and the track record of returning capital to shareholders. Also, most of the companies had little U.S. equity research coverage. While some observers will say limited analyst coverage affects investor sponsorship, I like finding companies that have modest equity research ahead of Wall Street finding out about them. A case in point is Allete, which has five sell-side analysts covering the shares and at least a few other analysts in the wings.

Here are some of my key takeaways:

American States Water Company (AWR) has a history of paying and increasing its dividend — second only to Proctor & Gamble (PG). This California-based regulated water company is a water scarcity play, and it is expanding its footprint as the military privatizes its water and waste-water contracts for its bases around the United States. What’s interesting is that these contracts carry long lives (50 years or so) and that AWR can improve pricing. Although this business is not the key driver of earnings and cash flow for American States Water, with roughly 20 new bids on top of the nine bases it currently serves, this business offers long-term stability and predictable earnings, as well as cash flow to the company. No wonder AWR is able to be a dividend dynamo like PG.

American Water Works (AWK) shares also have had a solid move year to date, up more than 15%. Now, I like the nature of the company’s business — 90% of its revenues come from regulated water utilities in 16 states. If forecasts for a hot, dry summer come to fruition, it would drive incremental demand for water, and that’s a boon to American Water Works and its shareholders. The steady nature of the business, coupled with rate increases tied to capital spending to update and overhaul its water infrastructure, have allowed American Water Works to increase its quarterly dividend steadily to the current $0.25 per share, up from $0.20 per share in 2008.

Management shared that American Water Works spends between $800 million and $1 billion per year updating its water infrastructure — and it’s not the only company doing so, which confirms my thesis behind recommending shares of Xylem (XYL) in PowerTrend Profits. Even though XYL shares are up 18% before dividends since that recommendation, I continue to like the long-term outlook, given water infrastructure spending.

Royal Dutch Shell (RDS.b) reminded us that it’s evenly split between natural gas and oil. The company also discussed its forecast plans to generate $175-$200 billion in cash flow from operations between 2012 and 2015. The basis for that plan calls for Brent crude prices between $80-$100 and natural gas prices higher than in 2012. With the shares up just over 1% and the dividend yield at 5%, I would interpret that situation to mean Wall Street sees those plans as a little aggressive, even though Royal Dutch Shell has a decent track record of increasing its dividend over the long term.

BBVA (BBVA) was one company represented on the panel that I never heard of before, and it really caught my attention. It is a global financial services company that focuses on commercial and retail banking and has been growing its footprint not only in the United States but also in markets like Turkey, China and others that are benefitting from what I call the Rise of the New Middle Class. With a 5.6% dividend yield and BBVA shares lagging the stock market big time, this is one stock where I need to roll up my sleeves and do my homework before I come to a conclusion.

Kimco Realty Corp. (KIM) management discussed the nature of its more than 900 shopping centers that span 44 states, as well as Canada, Mexico and Latin America. The two big questions asked during the discussion centered on the company’s dividend, which is back on the rise, and the tenant composition.

Interestingly enough, Kimco’s exposure to Internet-sensitive areas — books, consumer electronics, office supplies and other — accounts for just 8% of the company’s portfolio. In other words, Kimco only has modest exposure to Best Buy (BBY), Barnes & Noble (BKS), Office Depot (ODP) and Staples (SPLS). Instead, some of its key customers include Home Depot (HD), Bed Bath & Beyond (BBBY), T.J. Max (TJX), Wal-Mart (WMT) and Target (TGT). From an investor perspective, KIM shares have had a strong run — up nearly 28% year to date — and on a technical basis, they have entered overbought territory.

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