An open letter to new CEOs: leading from the dividend floor
Dear Chief Executive,
When you step into a large, established company, the pressure to embrace analyst consensus is immense. Consensus feels like the market’s verdict. It feels safe to peg your plans to it. But it is neither safe nor real.
Consensus is a sell-side artefact: optimistic, smoothed, often repeating the storyline your predecessors wanted told. It does not reflect what investors truly believe.
The buy-side, where real capital sits, behaves differently. Portfolio managers know forecasts are fragile and management credibility is uneven. When trust is thin, they strip away the story and anchor valuation to the one thing they can bank: the dividend.
That is the definition of a show-me stock. Growth is not priced in, because growth is not believed. And the way to tell if you’re running one is straightforward:
Your stock trades at roughly the level implied by a dividend discount model.
Investor conversations gravitate to dividend safety and payout ratios, not to growth strategy.
Guidance on “strategic upside” is met with polite nods, not higher multiples.
Missing consensus does not crater the share price, provided the dividend is maintained.
If these describe your company, then you are in a show-me stock - whether you call it that or not. The market is telling you: we discount everything you say about growth and strategy; we only pay for the dividend.
And here is where the trap lies: if you use consensus as the basis for planning, you anchor the company too high. You set unrealistic stretch targets the market never believed in. Business units strain to deliver against them, fall short, and management responds by cutting opex and trimming investment. Year after year, this produces the same empty spectacle: endless “hockey stick” plans that slope upward on paper, but never arrive in reality. Consensus-chasing institutionalises under-investment, trading the long-term for the short-term. The cycle is vicious: over-promising, under-delivering, under-investing - credibility corrodes, and the company remains pinned to the floor.
The irony is that missing consensus is not the danger. Chasing it is. As long as the dividend is safe and cover is intact, the stock holds. But if you starve investment just to flatter consensus, you guarantee you will never break free.
So if you are running a show-me stock, the playbook is simple:
Start with the dividend. It is the foundation of your valuation. Protect it.
Build credible cover. Ensure earnings and cash flow sustain the payout with headroom. Thin cover breeds fear; robust cover builds trust.
Invest only where returns are demonstrable. Channel capital into initiatives where proof is visible, not just promised.
Never use consensus as input into planning. It is theatre, not strategy. Anchor plans in what is deliverable, not in what analysts project.
This is the discipline the market is asking for. Only by proving reliability at the floor can you earn the right to raise the ceiling.
Yours faithfully,
A Concerned Shareholder