Our Rising Dividends Equity Portfolio seeks to provide a steady, growing stream of dividend income. Although no guarantee can be made about the future, the portfolio has historically exhibited less volatility than the broader stock market.
Our Rising Dividends Equity Portfolio focuses on identifying companies with above-average dividend yields relative to their industry sector peers, a history of regular dividend increases, and ample cash flow to both support the current dividend and provide for future increases. To identify companies that meet these criteria we focus on two variables: management’s philosophy regarding dividend increases and the company’s financial ability to increase its dividend. By monitoring management’s history and current targets for dividends we attempt to determine if higher dividend payments are a management priority. By reviewing a company’s cash flow relative to its cash needs and looking at the impact on that cash flow of past downturns in the economy, we calculate a company’s ability to sustain and increase its dividend going forward in both good times and bad.
Once we are comfortable with a company’s ability to grow its dividend, we apply our relative valuation process. To determine the appropriate price to pay for a company, we look at historical ranges relative to the company itself as well as to its peers. The valuation process looks at the company’s price relative to current and forecasted cash flow, earnings, sales, and dividends. The last measure, dividends, is also used in establishing the weighting of each holding in the portfolio. By giving larger weightings to stocks with higher dividend yields and smaller weightings to stocks with relatively lower dividend yields, we build in a simple “buy low, sell high strategy” while at the same time increasing the portfolio’s overall dividend yield.