Miller/Howard Investments

The Miller/Howard Story

Our love affair with dividend stocks is the foundation of Miller/Howard's investment philosophy.
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Hi, I'm Keith Thompson, a Regional Director at Miller/Howard Investments, and I'm here to talk about how our firm got started and how it has evolved.

Miller/Howard actually began as a research firm. In 1978, Lowell Miller wrote his first investment book, The Momentum Gap Method. It was named "Investment Book of the Year" by the Hirsch Organization. Soon after, he met Dr. Mike Howard, an inertial navigation systems specialist—or to put that in plain English, he was literally a rocket scientist. Mike read Lowell's book, and told him he could write code that would identify patterns in data to turn Lowell's philosophy into a useable investment approach. This was years before the internet, and what Miller and Howard were doing with computer algorithms and data was so unique and valuable, it drew the interest of prestigious clients.

Miller/Howard began selling their proprietary research tools to companies like Templeton, Soros, Cigna, FedEx, Hughes Aircraft, Delta Airline, and others.

Then in the early 1990s, one of those companies asked our firm to research income-producing equities as an income alternative to bonds. At the time, Lowell Miller thought the most logical place to look was utilities because they had the highest and most persistent dividends in the market. But when he searched for long-term studies on utilities, there were none. So he and Dr. Howard conducted a longitudinal study of the utilities market as an asset class, seeking an income alternative.*

Their landmark study found that over a 45-year period from 1945 to 1989, utilities, based on the Dow Jones Utility Index, returned just over fourteen times more than US government 20-year bonds, with dividends reinvested and adjusted for inflation, and distributed substantially more income. Though many investors believe that utilities are not the place to make money, during this 45-year postwar period, utilities performed nearly as well as the S&P 500, but were able to do it with about half the volatility.

This marked a turning point for our firm, and it's where our love affair with dividend stocks, going well beyond but also including utilities, started. Translating the teachings from that initial research into our first investment strategy, we evolved from researchers to asset managers, and Miller/Howard Investments was born in 1991. Mike Howard left the firm soon thereafter, because his heart was really in science and research.

We continue to manage portfolios and continue to see much value in this often-ignored utility sector. But we've taken lessons learned from managing in one higher-yielding group and applied them across the market, so that today our flagship portfolios cover nearly all sectors. We favor companies that offer recurring-revenue business models—there's a lesson from utilities—and that provide goods and services that consumers or businesses use all the time. We want sound companies that have presented their financial ability to pay dividends and the willingness to do so, as well as the potential to raise them over time.

Just as an apartment building will be valued according to the rents it produces, higher-yielding dividend stocks are also partially valued based on their dividends. If the rents go up, the apartment house is worth more. If the dividends go up, at least in theory, the stock may be worth more.

Our explorations in dividend stocks have led us into other interesting investment areas. For example, in 1994 we owned pipelines. Soon these became master limited partnerships and midstream companies, and these were a kind of poster child for high-yielding dividend-growth stocks. But while utilities stand at one end of the midstream, oil and gas producers stand at the other end, and to understand the midstream income producers we had to learn to understand the upstream energy producers. Thus, our Drill Bit to Burner TipĀ® strategy was born, joining our broad dividend, utility, and midstream strategies.

So we've evolved over the years, still studying and learning and researching, just as we did in the beginning. It's in our DNA, and the future will probably bring yet more strategies that grow out of our research background and are shaped by changes in the industrial landscape of our country and the world.

But the tried-and-true formula that is the foundation of Miller/Howard's investment philosophy and goal will remain the same: high-quality stocks + high dividend yield + high dividend growth = potential for high total return. That's our story, and we're sticking to it.

*Lowell Miller, J. D., & Michael S. Howard, PhD. (1989): Better than Bonds, Miller/Howard Investments, Inc.

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