What is your outlook for dividend-paying equities?
We are seeing an improving economy. It's not as strong as we really would like. But we are starting to see better employment.
There seems to be better housing data coming out. That's all a positive. It does mean we will probably have some increase in interest rates. We're not looking for a spike in interest rates, but rates will be going up.
And we think, as this happens, it's going to transition from some of the lower-quality, highly-leveraged, small-capitalization companies into the more high-quality, larger-cap companies that we tend to invest in.
So I think it's probably a good time for our stocks as we start to deliver on earnings, continue to deliver on dividend growth. And we think that will drive people to have a flight from these lower-quality stocks that have been performing over the last year and moving more into the high-quality, dividend-growing companies that we invest in.
What sets the Equity Dividend Fund apart from its peers?
Well, the Lipper Equity Income peer group is not a homogeneous peer group. It's made up of dividend-growth funds like we are. There are also funds that shoot for higher yield. So they may have more fixed income.
They may have converse and preferreds. You know, those types of instruments are going to give some of the upside participation away if you do have a good market. So, you know, what we tend to focus on is that dividend growth but then focus on very high quality companies so that balance sheets are strong.
You're going to have the highest margins throughout a cycle, good dividend growth so that you're going to participate on the upside. But you're really going to protect in the downside if you get into a rough patch in the market.
And I think that sets us apart from a lot of the other companies in the Lipper peer group.
What do you look for in a dividend-paying company?
Whenever we meet with a company it's their attitude towards returning excess cash to shareholders. And you know, rather than do share buybacks or M&A strategies, which may take them outside of their core competency, we like companies that say, the first use of that free cash flow is to return it to shareholders.
So you know, we start with looking for those types of companies. Over the last, 10 years, we've had a 12.5 percent dividend growth. That's about twice the dividend-growth rate of the index.
And we think, with the demand from people for their retirement income and to grow their income as they live longer in retirement, that dividend growth should continue to be, in selected companies, should continue to have that type of strong growth.
Related by Topic: Economic Outlook , Equities
Chief Investment Strategist Russ Koesterich discusses how investors should be positioned as the Federal Reserve signals a gradual increase in interest rates.