There’s an old saying in the share market that company directors sell shares in their own businesses for many reasons, but only ever buy because they think the stock is going higher in the future.
Alas this is not a cast iron rule as nobody knows the future, but when a director steps up to buy a significant amount of shares in a business it’s generally a strong vote of confidence in its operating performance and valuation as as minimum.
Today it was revealed that Dicker Data Ltd’s (ASX: DDR) chief operating officer, Vladimir Mitnovetski, more than doubled his existing shareholding by snapping up 199,099 shares at $2.83 each for a total amount around $563,000.
This is a not an insignificant amount to all but the wealthiest C-suite operatives, and Mr Mitnovetski’s confidence looks a good sign for shareholders.
More so because the buyer is the experienced chief operating officer of the IT hardware distribution business that operates on slim margins, but has an impressive track record of steady organic growth.
Part of the attraction to Mr Mitnovetski is likely the juicy dividend stream that Dicker Data shares offer, with my expectation being that it should pay out above 18 cents per share in dividends over the year ahead.
That represents a yield of 6.4% plus the full benefits of franking credits with the stock changing hands for $2.83.
Dicker Data has been able to grow its dividend at a strong rate since 2015 and if it is able to grow revenues while maintaining or even lifting its slim profit margins in the years ahead the stock could march far higher.
It’s not the sexiest business going due to its moderate economics, but I’d still rate it as a buy thanks to its high insider ownership, alongside the mix of value, growth, and income the stock appears to offer.
It sells for around 16x rough estimates of FY18’s earnings which looks reasonable value for a well-managed business with a track record of growth.
Other companies to have reportedly seen director share buying recently include SEEK Limited (ASX: SEK), Qantas Airways Holdings Ltd (ASX: QAN) and Wesfarmers Ltd (ASX: WES), although I’d still prefer to follow the money trail at Dicker Data myself.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Wesfarmers Limited. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.