I've had a lot of meetings the past three weeks, with CIOs of insurance companies, large mutual fund families, and treasurers and CFOs of Fortune 500 companies. One story that has resonated well, and only recently came to mind, goes back to my first-year associate training at Bankers Trust.
I was part of the hotshot derivatives crew (at least we thought we were hotshots). One day, the head of credit spoke to us. Joe Manganello, a former marine.
What could a bunch of quant geeks learn from some boring head of credit? Turns out a lot. His discussion was the only thing I remember from all the speakers we had.
Manganello said two things that resonate to me to this day:
1. It is actually pretty easy to do the work and figure out if someone has the ability to pay.
2. It is very hard to figure out if someone has the willingness to pay.
Bankers Trust was in the midst of lawsuits with P&G, Texaco and Gibson Greetings at the time, but I got to know Joe over the course of several years. What he really meant, was that you had to look into the hearts and souls of management and figure out what they were in it for. Roll the dice and hope for the best? Or long-term strategic players?
I think that is more important than ever, and picking those companies that "understand" that and how to create long-term value will create the best income portfolio that you can.
Don't be tempted by the high dividend that is risky.
Don't be tempted by the stories of growth and prosperity that make no sense to you.
Use your common sense to determine who you want to be married to and not just date as the next few years are likely to be tricky for equity investors -- including dividend- focused investors.
(This commentary is an excerpt from an article originally sent Nov. 26 to subscribers of TheStreet's Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this each day from Nick McCullum, Peter Tchir, Chris Versace and others.)