Our Process
The 10/10 Test
Our 10/10 Test is simple: we invest in companies that 1) consistently pay dividends at an increasing rate that averages at least 10% per year and 2) pay those dividends for a minimum of 10 consecutive years
A company must pass this 10/10 Test to be included in our dividend growth portfolios. To remain in our portfolios, companies must continue to pass this test; whenever the 10-year trailing dividend growth rate declines below 10%, we eliminate them from our clients’ portfolios.
Past performance does not guarantee future results and a number of factors both positive and negative affect stock prices.
There is no guarantee that this investment strategy will succeed. The strategy is not an indicator of future performance. Investment results may vary. The investment strategy presented is not appropriate for every investor.
Research
In excess of 100 companies pass the 10/10 Test. In our view, most qualify as sound businesses, but we use fundamental analysis and market perspective to determine what we believe should make the best investments. We have followed many of these companies for years and our research efforts are comprehensive. We seek to understand what fundamental drivers generate each Company’s earnings, and the challenges and opportunities within industries. We prefer a record of steady results, strong cultures, and shareholder-friendly managements. When given the opportunity, we favor industry leaders, strong brands, and significant and growing global exposures. We try to understand the big picture, and anticipate what that will mean to our companies. We also look closely at the numbers, and the numbers behind the numbers. In summary, our research is designed to determine whether we think the company can continue to grow their dividend in excess of 10% per year.
Portfolio Construction & Management
Though we customize portfolios to meet individual client objectives and preferences, the Dividend Growth Strategy drives our stock selection. Each equity portfolio holds 25 – 30 Dividend Growth Stocks, across many industries and sectors. While strict sector weightings do not bind us, we are sensitive to diversification considerations. Although the majority of our stocks are large cap companies, our portfolios also include small and mid-size companies, providing further diversification. Portfolio turnover is generally low. As we construct each portfolio, we have the flexibility, for those clients seeking higher current income, to purchase securities providing attractive income yields, such as master limited partnerships (MLPs) in our portfolios. Additionally, MLPs may offer a tax advantage to investors. Knowing when to sell is more difficult than knowing when to buy. Our selling discipline is straightforward. We sell when we think fundamentals are likely to deteriorate, valuations are excessive, or we have a better investment opportunity. We also sell a stock when it no longer passes the 10/10 Test.
Small-Cap and Mid-Cap investing involves greater risk not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity and increased competitive threat.
Diversification does not ensure a profit or guarantee against loss.
An investment in a Master Limited Partnership (MLP) unit involves risks that differ from a similar investment in equity securities including ownership controls associated with the limited partnership structure, high debt to equity ratios, and certain tax risks.
