The uncertainty surrounding the current interest rate environment has many investors rethinking their retirement income strategy. Some are considering dividend income as a way to generate additional cash for their income needs.
Below are four dividend money manager strategies that invest in dividend paying stocks as a means to provide income for portfolios, while also offering the potential for equity-like returns over time.
As always, we encourage investors to discuss these dividend money managers with your financial advisor before investing.
(WrapManager is not affiliated with the money managers listed and has not approved for use nor entered into contracts with all of the managers. This is for informational and comparison purposes only.)
Zacks Investment Management Dividend Strategy
The Zacks Dividend Strategy invests primarily in large cap, dividend paying value stocks - names like Exxon Mobil, Wells Fargo, and General Electric.1
The strategy generally selects stocks from within the universe of the Russell 1000 Value Index, and uses a model that evaluates companies based on dividend yield, free cash flow, and short interest. The investment philosophy behind this approach is based on Zacks research, which has found that over a full market cycle equities that pay dividends tend to outperform equities exposed to similar risk factors that do not pay dividends.
The Zacks Dividend Strategy had a dividend yield of 2.94% (as of 12/31/2013), and has performance metrics dating back to March 31, 2004.1
Click here to request more information on the Zacks Dividend Strategy, including how it has performed over time and compared to its peers.
ThomasPartners Dividend-Driven Income Strategy
We recently profiled the ThomasPartners Dividend-Driven Income Strategy in our piece titled “Charles Schwab Recommends ThomasPartners - Is It a Good Investment For You?" which we’d encourage you to read for a more detailed view of the strategy.
In short, the ThomasPartners Dividend-Driven Income Strategy has about $2.5 billion in assets under management,2 and is a diversified portfolio concentrating in companies with histories of increasing dividend payouts, with portfolio objectives of current income, increasing portfolio income, and capital appreciation.1
When selecting securities for the portfolio, the management team at ThomasPartners looks at three qualities for each company: Dividend growth track record, ability to sustain that growth over time, and ongoing performance and how well it meets ThomasPartners’ high standards.
The goal is to select high quality companies so as to result in low turnover for the portfolio.3 The dividend yield of the portfolio was 2.78% as of 12/31/13.1
Click here to request more information on the Thomas Partners Dividend-Driven Income Strategy, including performance information and analysis of the strategy
Federated Strategic Value Dividend Strategy
The Federated Dividend strategy has by far the most assets under management of the three dividend money manager strategies discussed here, with approximately $366.7 billion under management. The firm has also been around the longest, having been founded in 1955.1
The Federated Strategic Value Dividend Strategy's approach is to invest in a universe of dividend paying stocks with a greater than $3 billion market capitalization and a greater than 3% dividend yield. The strategy’s objective is to provide a high level of current income, long-term capital appreciation driven by dividend growth, and lower downside risk.
Federated believes that a portfolio of high dividend-paying stocks can produce attractive total returns as well as offer lower levels of long-term volatility compared to low- or non-dividend paying stocks.4
As of December 31, 2013, the dividend yield on Federated’s Strategic Value Dividend Strategy was 4.59%,1 higher than the other strategies discussed here.
Brookmont Dividend Equity Strategy
The Brookmont Capital Management Dividend Equity Strategy takes a top down approach to investing, focusing first on macroeconomic drivers to help determine where and how they should invest. Once they’ve decided what areas of the market they want to emphasize, they run a rigorous stock selection process that ultimately results in 34-40 holdings. The stocks they choose by design have low correlation to one another, which is a diversification tool meant to reduce volatility.
The Brookmont portfolio seeks to generate monthly cash flow, downside protection, and the potential for capital gains, but it also seeks to do so in a tax efficient manner, with a low average turnover since inception of 5-20%.5
Dividend growth in the portfolio has averaged nearly 15% in the last five years, and has a yield of 3.21% as of December 31, 2013.1
Which Dividend Focused Money Manager Strategy is Right for You?
Each of the above money manager strategies focuses on dividend paying stocks to provide income and total return to the portfolio, but they’re not all the same. If you would like to learn more about each strategy and compare and contrast their approaches, please call one of our Wealth Managers at 1-800-541-7774 today, and we will be happy to share our research with you.
1 Informais Investment Solutions
4 Federated Investors Strategic Value Dividend Managed Account Information Sheet
There are no guarantees that dividend paying stocks will continue to pay dividends. In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks.
Strategy descriptions listed represent a brief outline of the portfolio’s objective. There is no guarantee that any manager or product will be successful in achieving the objective described. The strategy used by the money manager listed is not suitable for all investors. This material does not represent a personalized recommendation and does not reflect individual investor’s risk and return goals nor does it serve as the receipt of, or a substitute for, personalized advice from WrapManager, Inc. or any other investment professional.