When most of us think of dividend strategies, we think of how much income we will receive today with a focus on the current yield. The types of companies that can deliver high yields are often mature companies with consistent, predictable cash flows. These “high” yield strategies are often heavily weighted in sectors like Utilities, Financials, and REITs. Given their level of business maturity, these stocks are considered more Value stocks as their valuation metrics factor in lower but steady growth going forward.
On the other hand, dividend growth strategies tend to have broader sector exposure because of the dynamic nature of where dividend growth can be sourced at any given point in time. As the graph above shows, the dividend growth portfolio (on the left) is a mix of Growth and Value stocks. The dividend growth portfolio is not as beholden to the rotation between Value and Growth. It lies in between. This makes sense, because to deliver a sustainable growing dividend the organic growth of the business itself must be generating the free cash flow to support the rising dividend. The chart below helps illustrate how dividend growth (S&P500 Dividend Aristocrats) fits between typical Growth (Russell 1000 Growth) and Value (Russell 1000 Value).
At Bristol Gate, we identify the fastest dividend growth companies of the highest business quality. The result is a portfolio based on Growth but in a more defensive way and with a better risk profile than the typical secular growth strategies that often do not hold dividend payers.
Often investors wonder where Dividend Growth fits into their personal portfolio. We argue that Dividend Growth holds a place between Growth and Value because the attributes that Dividend Growth strategies bring to a portfolio are uniquely positioned between the two of them. The underlying quality factors of dividend growers may help enhance an investor’s overall asset mix.
There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.
This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.
A Note About Forward-Looking Statements
This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.
These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.