Fund Proves It Pays to Support Shareholders

TEQUESTA, Fla. (TheStreet) -- Companies such as Church & Dwight (CHD) and Colgate Palmolive (CP), which pay dividends and limit executive compensation, have outperformed the S&P 500 Index over the past year.

That strategy has helped the Mirzam Capital Appreciation Fund ( MIRZX), which buys shares of companies that follow so-called best practices.

The mutual fund, co-managed by Albert Meyer, has risen 27% over 12 months, beating the S&P 500's 22% gain. Mirzam Capital Appreciation is up 3.6% in the past month, while the benchmark index is little changed.

More than 99% of the Mirzam fund's holdings pay a portion of their free cash flow in the form of dividends. Meyer prefers established companies with long track records and evidence of shareholder support. Mirzam Capital Appreciation's largest positions are Teva Pharmaceutical ( TEVA), Huntington Money Market Fund and Ship Finance International ( SFL).

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.

Why is CEO pay an important part of your stock-selection process?

Meyer: The whole corporate culture is expressed by executive compensation. The more emphasis a company puts on executive compensation, the less emphasis on shareholder returns. So we look closely at corporate governance, and we focus on the stock-based compensation part of CEO compensation.

Why are you a big fan of Church & Dwight?

Meyer: Church & Dwight owns some valuable brands that are used in households that are based off their Arm & Hammer baking soda brand. The company pays a nice dividend and has a nice net margin, disciplined executive compensation and shareholder capital allocation. It's just a great company. It's performed extremely well over the past few decades, and the company has been around since 1846.

Another big-brand company you're high on is Colgate.

Meyer: Colgate also has been around for more than 100 years. It dominates or has a very large market share in toothpaste and toothbrushes. Colgate also has other consumer products used in homes. The company has a high net margin and a very high return on capital. It takes its dividends seriously and buys back stock. No stock option problems there as well.

Richie Brothers Auctioneers (RBA) seems like an off-the-beaten-track stock.

Meyer: Richie Brothers Auctioneers is a Canadian company but has facilities globally. It auctions industrial and mining equipment. It's a very transparent business model with wide profit margins. The company has a large competitive advantage. It's a terrific company.

Another brand-management company you like is Nestle (NSRGY). What's attractive about its brand lineup?

Meyer: Nestle has been around for 140 years. It's a Swiss company with 480 manufacturing facilities in 86 countries. It has a very large range of products, and it runs them with Swiss clockwork precision. It's a terrific company to own with great corporate management, and you could see that in the way it dealt with Kraft's acquisition. Nestle stayed out of the bidding war and bought Kraft's crown jewel, its pizza business, instead.

-- Reported by Gregg Greenberg in New York.

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Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.

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