The Dividend Growth Strategy managers invest primarily in mid and large capitalization dividend paying stocks of high quality companies at a discount to the investment managers’ assessment of intrinsic value.
The Dividend Growth Strategy managers consider two things when researching investments: identifying what type of businesses to own and what price to pay. There is an old adage on Wall Street that says, “A good company does not always make a good stock and a good stock might not always be of a good company.” The focus is on buying good companies that are also good stocks.
The Dividend Growth Strategy managers identify good companies that are also good stocks by using non-traditional measures like Return on Invested Capital and Free Cash Flow. Traditional methods like Price to Earnings Ratios and Historical Dividend Growth are also used to help the Dividend Growth Strategy investment managers identify companies with sustainable business models that trade below their intrinsic value.
Investment Strategy Advantages
It is a known fact that owning high quality companies with a consistent dividend policy produces superior longer term returns versus the averages, especially when considering risk. The Dividend Growth Strategy has an average holding period of 3 years which limits capital gains taxes and helps maximize after-tax returns. Additionally, dividend paying, high quality companies tend to have stable business models which perform well in both good and bad economic times. These types of companies produce returns that are less volatile than the overall stock market.
- High Dividend Growth
- High Free Cash Flow Yield
- High Return on Invested Capital
- Low Price to Earnings Ratio
Investment Strategy Risks
Market – Risk associated with an overall decline of the stock market.
Style – Risk associated with an investment style temporarily going out of favor.
Concentration – Risk associated with holding a concentrated list of stocks, typically 30, versus an index which may hold hundreds.