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Brookmont Capital Management’s Award-Winning Dividend Equity Strategy

Posted by WrapManager's Investment Policy Committee
January 17, 2014

Brookmont Capital Management Dividend Equity StrategyFor investors seeking income-producing alternatives to fixed income/bond investments, many turn to dividend focused strategies. WrapManager evaluates and conducts research on many dividend focused money managers, though one in particular has stood out in recent years: the Brookmont Dividend Equity Strategy. It could be a solution for an investor looking to allocate a portion of their portfolio to a dividend focused strategy.

The Brookmont Dividend Equity Investment Approach

Money manager Brookmont Capital Management believes in a top-down approach to investing, meaning they first consider the state of the macro economy and the market cycle, only then shifting focus to what areas of the market they believe will offer the highest earnings growth potential.

The allocation of stocks spans all ten sectors (as defined by S&P 500), which Brookmont implements as a diversification tool designed to reduce risk. Each sector carries a maximum weight in the portfolio of 20%, and individual positions range between approximately 2.50% - 3.50%.

When looking out to the universe of stocks from which to select, the strategy isn’t restricted by market capitalization, style or domain. This gives the Brookmont Capital Management portfolio management team the flexibility to search high and low (and big and small) for companies they want to own.1

Selecting Stocks for the Brookmont Dividend Equity Strategy

With full consideration to the top-down approach as described above, the next phase of the investment process involves finding stocks that meet Brookmont Capital Management’s rigorous screening criteria. This includes looking at the current yield, S&P credit quality, free cash flow, earnings outlook, debt structure, quality of management, history of dividend increases, and industry outlook.2

The Brookmont Capital Management investment team then selects eligible stocks, eventually reducing them down to approximately 35-40 holdings which they believe yield exceptional dividends, have potential for long-term capital gains, and offer attractive valuations with below market-risk profiles. The stocks ultimately chosen have, by design, low correlation to one another, which is a diversification tool meant to reduce volatility.1

The end result is a portfolio comprised of dividend stocks that Brookmont thinks can grow their revenue and net income, provide an above-average yield with growing dividends, and produce enough cash flow to support organic growth and a reasonable return to shareholders.1

Investment Objectives and the Current Dividend Yield

With the investment approach described above, the Brookmont Dividend seeks to generate monthly cash flow, downside protection, and the potential for capital gains. But they also want to do so in a tax efficient manner, with a low annual average turnover since inception of 5-20%.

Dividend growth in the portfolio has averaged nearly 15% in the last five years.1 As of September 30, 2013, the dividend yield on the Brookmont Dividend Equity Strategy is more than 50% higher than that of the S&P 500—the Brookmont dividend yield being 3.21%2 versus 1.9% for the S&P 500.3 Some sample holdings include household names like Johnson & Johnson, Chevron, and Home Depot.2

Performance of the Brookmont Dividend Equity Strategy

The Brookmont Dividend Equity Strategy has received several awards from various third party research firms for past performance. Among them, Morningstar, Lipper/Thomson Reuters, and Zephyr all named it the #1 Large Cap Value Strategy based on 5-year performance ending June 30, 2013. Morningstar also named it the #1 Dividend Equity Manager based on 5-year performance for the same period.1

To learn more about other awards the Brookmont Dividend Equity Strategy has received, or to request detailed information about past performance, contact us at 1-800-541-7774 or click here to let us know what you’re looking for.

Is the Brookmont Dividend Equity Strategy a Good Investment for You?

Choosing whether to invest in a dividend-focused strategy depends on a number of variables and questions specific to you. What are your long-term goals? What are your available cash flow sources and cash flow needs over time? What does your overall asset allocation look like? What are your dividend income options? What percentage of your total portfolio should you consider for a dividend-focused strategy?

One of our WealthManagers can help you address these questions. We can help you understand how a dividend-focused strategy may fit as a piece of your overall portfolio, and then help you evaluate the various money managers that specialize in this approach.

Give one of our WealthManagers a call at (800) 541-7774 to learn more. Alternatively, you can request information about how to get started here.


Sources:

1 Brookmont Capital Management

2 PSN Enterprise

3 FactSet

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. 

Brookmont Capital Management, LLC