Dividend Stock Portfolio

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The Dividend Stock Portfolio invests in high-quality, dividend paying stocks, diversified across various industries and sectors; holdings may span various sizes (i.e., large-cap vs. small-cap), styles (i.e., growth vs. value), and geographic locales.

``Do you know the only thing that gives me pleasure? It's to see my dividends coming in.``

-John D. Rockefeller

Total Return Potential

While investors typically seek dividend yielding stocks during periods of market weakness, it is notable that in almost every decade since the 1930s, US dividend yielding stocks outperformed the broader S&P 500®, with the 1990s as the only exception.2 Although these stocks tend to experience muted price appreciation in growth-led bull markets, dividends have represented a substantial portion of market returns over time. In fact, reinvested dividends account for over 40% of broad market returns since 1988. (See Figure 1.)
Over the long term, investor demand for income is expected to increase as more baby boomers retire, putting pressure on companies to add and increase dividend payouts. Boomers make up about 26.1% of the population, or an estimated 78 million people, and while many have delayed retirement due to the recession, the first of the group turned 65 in 2011.3 Conservative growth stocks may be increasingly in demand as this sizable group transitions to income-producing investments.
Dividends Represent 40 of Total Return since 1988

Buy and Sell Discipline

In the event a company’s financial health is rapidly deteriorating and its dividend is at risk, we may sell— if we fell the best way to preserve the remaining value of our capital and the income it can generate—even if we don’t have a ready replacement at hand. The rest of the time, however, we may sell one stock for another when the purchase meets one or more of the following criteria.
  • A higher dividend yield without sacrificing any meaningful amount of long-term dividend growth potential or fundamental quality. Generally requires a minimum yield of 3% for new or add-on purchases.
  • Greater long-term dividend growth potential without sacrificing any meaningful amount of current income or fundamental quality. Likely to grow at least as fast as inflation over the long run (2%-3% annually).
  • Improved fundamental quality without sacrificing any meaningful amount of current income or long-term dividend growth potential. Typically companies have a sustainable competitive advantage that allows a company to earn excess returns on capital for a long period. A company generates excess returns if its return on capital exceed its cost of capital.
  • A more attractive valuation than the stock we’re selling, which indicates greater capital-appreciation potential, without sacrificing any meaningful level of quality or amount of current income or long-term dividend growth potential. Stock prices at or below our fair value estimates based primarily on a discounted cash flow analysis.

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