Strategic Dividend Growth (SDG) Enhancement

Posted by Michael Parker, CFA on 6/21/19 8:45 AM
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The following is an excerpt from our recently published white paper detailing the enhancements to our Strategic Dividend Growth strategy.  

We continue our quest to find opportunities to unleash institutional approaches to the benefit of our private wealth clients. Today that translates into an enhancement to our Strategic Dividend Growth (SDG) strategy. The premise of this enhancement is to take best practices deployed by multi- billion dollar institutions and avail them to individual investors, while simultaneously avoiding compromises that would prohibit success by the future institutional or private wealth client. The first stage of this strategic roadmap deployment was the launch of our equity growth strategy, Dynamic Growth Opportunities (DGO), which began trading May 1, 2018, and recently celebrated its first full year as a stand-alone mandate.

Download a full copy of our strategy update by clicking here.

SDG

Stage two of our build-out included a revamp to our ETF-based asset allocation strategies—our SWS Direct automated platform, and our Multi- Asset Income (MAI) portfolios—in order to maximize the benefits surrounding asset allocation and cash management.

For the third stage, we turn to SDG and focus our attention on the following areas for enhancement:

  • Benchmark consideration: SDG places income generation front-and- center as its main objective. Therefore, benchmark appropriateness would encourage seeking a bogey with a constituent composition containing a similar premise. That said, the presence of a dividend is not the sole consideration behind the analysis. Careful scrutiny of the types of issuers and the inherent sector exposures within the benchmark’s portfolio are essential to understanding sources of active risk. This is where we found our first opportunity for fit improvement, as an addressable universe of higher dividend paying constituents mimics the value style more so than blend or growth styles. To achieve an acceptable dividend yield, i.e. something in excess of 3%, one will find larger quantities of investment opportunities among financial services, energy, and utility companies than, say, those in technology and consumer discretionary sectors.

To put this in context, we analyzed the sector composition of equity issuers with >2% dividend yields among the largest 1,000 US-listed companies via the Russell 1000 Index. Chart 1 below reveals how the relative weighting of the higher dividend payers maps more closely to the Russell 1000 Value Index than it does either the Russell 1000 or the S&P 500 . . . 

To continue reading, download a copy of our strategy update by clicking here.
 

Topics: Asset Management

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