Bahl & Gaynor invests with consistent growth in mind.
Don’t expect a conversation about a typical portfolio at the investment firm of Bahl & Gaynor to garner a lot of oohs and ahhs at a cocktail party. And officials at Bahl & Gaynor are just fine with that.
The company’s bottom-up approach to investing—focusing on the analysis of individual stocks—has continued to pay dividends for its clients since it was founded in 1990 by Bill Bahl and Vere Gaynor.
“I would argue that a typical Bahl & Gaynor portfolio doesn’t have the splashiness of a portfolio that would get a lot of interest at a cocktail party,” says W. Jeff Bahl, principal and portfolio manager. What those portfolios lack in sizzle, however, is made up for with a steady growth of income by investing in companies that are committed to paying their shareholders money from their profits—known as dividends.
“If you think about it in baseball terms we’re not swinging for home runs every time at the plate,” says Bahl. The company is looking for a lot of walks, singles and doubles with the companies in which it chooses to invest, he says.
And all those times on base add up to wins for its clients. “Even though you’re not hitting that sexy home run doubling your income every seven or eight years to us it is pretty sexy,” says Bahl.
Officials at Bahl & Gaynor look for companies that have the ability to pay dividends regardless of whether the stock market is up or down. “Anyone can be a hero during the ‘Kumbaya’ moments of a bull market,” says Ellis Hummel, principal and portfolio manager. “However, the companies that we invest in we expect them to pay and grow their dividends even during the depths of a crisis.”
That ability to pay dividends even during rough economic conditions protects Bahl & Gaynors clients’ investments, he says. “You make your money in down markets because that’s where you keep what you made in the up market,” Hummel says. “You’re capturing or keeping more of your return in the down risk years.”
It’s important that clients understand that and don’t sell when the market is down, he says. “It’s not timing the market, rather it’s time in the market where you can let the compounding of earnings and dividend growth really work for you,” says Hummel.
Finding those companies that pay and even grow their dividends is a result of analyzing the company’s financial data and meeting with the managers of those companies.
It’s a long process involving multiple management meetings, management calls and watching a couple quarters of earnings before Bahl & Gaynor decides to buy a company’s stock, says Bahl.
“We really want to feel comfortable with the holding before we put it into our clients’ portfolios because we don’t want to sell it a month or two later based on something we didn’t know or could have learned through more thorough investigating,” says Bahl.
It’s also important in those face-to-face management meetings to find out how committed company leaders are to making sure investors are paid a dividend, says Hummel.
“You can see it in the eyes whether the dividend is a featured point of their board meeting or just a byproduct of the process,” Hummel says. “We want to align ourselves with management who are as committed and fired up about dividend increases as we are—which is a pretty high bar.”
Although Bahl & Gaynor strictly focuses on investing in companies that pay dividends it still offers a range of diverse products for clients, such as small-cap, mid-cap and large-cap investments.
Those products were developed in the mid-2000s, says Bahl, because officials decided there might be a demand for them in the future. Now that there is a demand for those types of investments Bahl & Gaynor has an advantage over its competition, he says.
“By the time a small-cap company grows to a mid-cap and then is really eligible for a large-cap purchase we’ve likely been following that company for anywhere from three to five years,” says Bahl. “We already have five years of experience with the name so we can act much more decisively and with confidence.”
When Bahl & Gaynor creates a new product employees use their own money to seed the investment. “The first money that goes into these strategies is Bahl & Gaynor house money,” says Hummel. “We’ll use our retirement services first so our own money is put into the investment to get it to scale.”
Not only does Bahl & Gaynor offer diversified investment strategies, but it is also investing in human capital to diversify its workforce. That starts with the interns it hires, says Hummel.
The company has a great relationship with the University of Cincinnati’s University Honors Program, which comprises the top 7 percent of UC’s undergraduate students.
“Some of the best brains are here in Cincinnati,” says Hummel. “There’s a deep pool of potential hires.”
Kevin Gade was in the UC honors program when he was hired as an intern at Bahl & Gaynor in 2011. Gade says the company expects interns to work hard, but in return they receive plenty of help.
“The resources and keys are given to us right away,” says Gade. Interns are expected to work 15-20 per week while in school, he says. “The ramp up is quick,” says Gade.
After graduating from UC’s Carl H. Lindner College of Business with a bachelor’s degree in business administration, finance and business economics, Gade worked in New York City for 2 1/2 years.
He stayed in contact with people at Bahl & Gaynor while in New York and soon company officials offered Gade a job and a chance to return to Cincinnati. That’s unusual for a Cincinnati company to convince someone working in New York to come to Cincinnati and work, says Hummel.
But it’s important for Bahl & Gaynor to attract and retain smart, educated young professionals like Gade in order to address the next cycle of investors, he says. “We want to remain relevant,” says Hummel. “We’re constantly thinking about the future.”
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