Don't Believe a Word They Say

A large part of the work that any company's investor-relations department does revolves around managing the message the company wants to send to its investors. If it paints too rosy a picture about the future, a subsequent disappointment will probably result in the tanking of a company's stock and may invite shareholder lawsuits as well. If, on the other hand, it paints too bleak a picture, its stock could drop right away.

At the same time, remember that a company's stock is a useful financing tool for the business. By selling shares to the public, that company can raise more cash to help pay for its operations and/or expansion. In addition, stock and options on that stock are often used as a reward to a company's employees and management team.

What comes from that pressure cooker?
Thanks to those competing priorities and tremendous pressures from multiple sources, most official corporate communication to investors takes a very similar form. It comes in a dry tone with neutral to optimistic projections (offset by disclaimers), and it tends to paint bad news in the best possible light -- without overtly lying about what's happening. It's all a carefully rehearsed show, with very little left to chance or an individual representative's discretion.

As a result, aside from financial results and perhaps the direction of earnings projections, most of the information that comes from a typical investor relations team is fairly useless to investors. So instead of watching that sideshow, keep your eyes peeled for the main event. Watch what the company and its insiders are actually doing with their own money, rather than the carefully scripted message they want you to see.

Two critical things to watch
Above all else, the most important things to watch are whether a company is actively raising its dividend and whether or not its insiders are buying shares. As those press release disclaimers point out, forward-looking earnings projections are at best estimates, rather than committed facts. A rising dividend, on the other hand, is a sign of a company that's committing to pay actual cash in the future. That's a whole different -- and more important -- level of confidence in the company.

Likewise, when company insiders actively go out and buy shares of the company's stock, it's typically a very good sign that they really believe in its prospects. After all, many insiders either already have significant portions of their net worth tied up in the company's stock or receive part of their compensation in stock or options. To go out and spend actual cash to buy more shares in light of that is a sign that they're firmly convinced of their company's future success.

Here are just a few companies whose insiders have raised dividend payouts and bought shares using their own money within the past year:

Data from Capital IQ, a division of Standard & Poor's.

When you find a company that has both traits going for it -- a rising dividend and insider buying -- it's one certainly worth investigating for a possible spot in your portfolio.

Be like those who know a company best
After all, nobody knows a company quite as well as its insiders do. They know far more about the business' plans, strategies, research, and competitive environment than outsiders do, and they're in a position to directly influence the company's direction. If they're confident enough to commit the company to larger payments to shareholders and to put their own money in the venture, chances are very good that the business will succeed.

At Motley Fool Stock Advisor, we know how important it is to look past press releases and at the actual actions that company leaders take when trying to figure out what's really happening. That focus on what's truly going on with a business has helped our service in our quest to find the best stocks around. If you're ready to dig beyond the fluff to find the substance behind what makes a company tick, join us today. If you'd like to see our team of analysts' favorite stock ideas right now, click here to start your 30-day free trial. There's no obligation.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Fortune Brands is a Stock Advisor selection. Philip Morris International is a Motley Fool Global Gains pick. The Fool has a disclosure policy.