In the past I have written that my investment style is split between dividend growth investing and deep value investing. The last couple of years it has become very difficult to find attractive deep value investments (notice I dropped the "deep" from the title).
Meanwhile, artificially low interest rates and a silly bond market have encouraged companies to return capital to shareholders in the form of share buy backs and dividend increases. (For the record, I believe a dramatic repricing of debt is coming…..but that's a discussion for another time). The last few years have been a GREAT time to be a dividend growth investor.
This past week I mentioned that I began accumulating shares of Hallmark Financial Services, Inc (NASDAQ:HALL)….. hence the nerd-ish word play in the title. The company is a Texas based insurance company, with almost exactly half of its business based in the state of Texas. What caught my attention was that one of the officers purchased $300k worth of the company's shares on the open market last week. Upon further review, insiders own over 31% of this businesses stock. Unfortunately, Hallmark has recorded rather poor operating margin and return on equity numbers over the past several years, so it won't be a long term holding. Still, I've outlined a few quick reasons why Hallmark Financial Services, Inc may be worth a look.
The company has 31% insider ownership. I always take insider ownership as a good sign, because it makes it "more likely" that their interests will align with regular shareholders.
The company has $80 million of net cash. Put another way, the company's cash minus debt, totals a positive $80 million. Also, the company has about $7 of cash per share, compared to a share price of $8.41 (on Friday's close).
Book value per share has more than doubled over the past 10 years, from $5.37 (2004) to $12.36 (2013). Notice that the recent stock price is dramatically less than the reported book value. I find this encouraging from a margin of safety perspective.
Typically, my portfolio's long term holdings are strong brands with high return on equity metrics and growing dividends. Conversely, my deep value investments tend to be small companies that are both thinly traded and even more thinly covered my analysts. I tend to hold these investments between 2 months and 2 years. Much like my investment in Emerson Radio Corp. (NYSEMKT:MSN) last year, I think Hallmark will provide my portfolio with solid returns.
Disclosure: I am long HALL.
Disclaimer: This analysis is for informational purposes only and should not be considered a recommendation to buy, sell, or hold any equities. I am not a financial professional. The information above is provided by Yahoo Finance and Gurufocus.com.