High Insider Ownership Equals Excellent Shareholder Returns

By Will Ashworth | May 11, 2010 AAA

Fossil, the watch and accessories retailer/wholesaler delivered huge numbers in the first quarter. According to company CFO Mike Kovar, the rest of 2010 will be equally impressive. This shouldn't come as a surprise. Fossil's been kicking it for some time now. All you have to do is look at the stock's performance in the last five years. What's the key to its success?

There are all sorts of reasons but the one thing that stands out is the Kartsotis brothers. Tom founded it in 1984 and his older brother Kosta is the current CEO. By doing a good job at the top, they've enriched shareholders and themselves to the tune of 15.9% total returns annually over the last five years and 24.8% year-to-date, achieving a double play. It's true that, more often than not, high insider ownership equals excellent shareholder returns -and these guys maintain a significant ownership position in the company. We'll look at four other companies currently turning the trick.

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High Insider Ownership = High Shareholder Returns

Company 5-Year Return YTD Return
Buckle (NYSE:BKE) 22.4% 22.8%
WWE (NYSE:WWE) 17.3% 15.1%
Nike (NYSE:NKE) 15.7% 16.1%
Fossil (Nasdaq:FOSL) 15.9% 24.8%
Cohen & Steers (NYSE:CNS) 11.2% 14.0%

The Wrestling Takedown
Who knew wrestling impresario Vince McMahon had this much staying power - or the chops to run a major sports business and do a good job. This is one solid company with loads of cash to payout 175% of its earnings in the form of dividends. Its 8.48% yield is one of the highest in the consumer goods sector and virtually debt-free. Most impressive is McMahon's compensation. He receives no stock awards or bonuses and just under $900,000 in annual salary. He's apparently satisfied with his 59% economic interest and 86% voting interest. Vince isn't going anywhere and that's a good thing for shareholders.

Buckle Up
I've written several articles about the Nebraska-based specialty retailer. The reasons I like them are countless. The company understands retail, is willing to take its time expanding across the country and does a great job getting its buying right. It's a good thing they're good at what they do because competitors like Aeropostale (NYSE:ARO) and Urban Outfitters (Nasdaq:URBN) aren't about to step aside and relinquish their market share. This is a full-on street fight. Only the strong and smart will survive. Small-cap money manager Chuck Royce has owned the stock since 2001 and eight of his funds hold 14.5% of the outstanding shares, second only to Chairman Dan Hirschfeld, who owns 36%. In case you were wondering, he receives little if any compensation for his Chairmanship.

Tiger's Beat
He came and went. Tiger Woods was back on the PGA Tour and then he hurt his neck at The Players Championship. He will likely be out for some time, possibly the remainder of the golf season. Nike, however, won't skip a beat. It's ready to take on Adidas in its own backyard in Europe as well as in Asia and Africa using soccer brand Umbro as its calling card. With plans to grow revenues to $27 billion by 2015, Nike will look to grow its non-Nike brands in the years to come. Between Converse, Cole Haan, Hurley and Umbro, Tiger may be little more than an afterthought. Personally, I believe the Air Jordan brand has a much greater shelf life but time will tell. Either way, founder Phil Knight can sit back and enjoy his company's success.

Real Estate Recovery
Asset manager Cohen & Steers would likely characterize the current state of the real estate markets as stable - that's a good thing. In 2007 and 2008, its total return was -23.4% and -60.8% respectively. The rebounding REIT markets have brought a dramatic turnaround in its assets under management. In just one year, the funds it oversees have more than doubled to $27.2 billion from $11.6 billion. It's the difference between a 21 cents a share profit in the first quarter this year and a 34 cent loss in 2009. Founders Martin Cohen and Bob Steers own 55.6% of the stock.

Bottom Line
Successful companies require visionary management. Warren Buffett is a prime example of why it makes sense to invest with people who've committed a substantial portion of their net worth in the companies they run. The result is higher returns almost every time.

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