A lot of academic data shows how founder led companies tend to outperform their more numerous rivals on the share market and this is logical.
A company led by its founders will tend to work with a disciplined approach to costs and not be overly eager on raising cash or piling up debt if it’s not in the long-term interests of the company and its shareholders that will include the founders.
Generally, I’d suggest that any share market investment portfolio should be invested between 50% to 100% in founder led companies as this will help you eliminate some risks (like poor cost management or scams) and hopefully lead you to some of the best growth businesses around.
IT hardware distribution business Dicker Data Ltd (ASX: DDR) is still 72% owned by its two founders, with David Dicker its CEO reportedly not paying himself a material salary but just living off the dividends his 38% ownership stake provides.
Other heavy investors in the business include its chief operating officer Vladimir Mitnovetski who has stake worth around $3.8 million. The COO has aggressively added to his stake in 2019 at prices up to $5.o5 per share.
When a COO significantly adds to an already material stake in a business like this I take it as a bullish signal that the underlying business is performing well.
Dicker Data itself is also handing out $1,000 worth of free shares to all its 460 eligible staff members in recognition of the company’s success. Although this will involve some dilution to existing holders via the issue of around 80,000 new shares I like the idea as I like to see alignment between a company’s goals and its shareholders.
Overall, I don’t know of a more shareholder aligned company on the local market than Dicker Data, with its share price up 250% over the past 5 years, before you account for substantial fully franked quarterly dividends over the period.
Dicker Data shares are $5.96 today and I reckon income seekers could do a lot worse than getting onboard.
Another business with heavy shareholder alignment that reported today is Magellan Financial Group Ltd (ASX: MFG).
Its co-founders Hamish Douglass and Chris Mackay still own 12.5% and 10% of the business respectively.
Moreover, they both commonly reinvest their dividends back into the business. They do draw $4 million in fixed salaries between them from Magellan plus any bonus incentive schemes.
Thanks in part to their shareholder alignment Dicker Data and Magellan are two businesses I expect could offer investors solid total returns going forward.
5 stocks under $5
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*Extreme Opportunities returns as of June 5th 2020
You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of and has recommended Dicker Data 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.
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