At times the market presents opportunities where dividend growth and high quality companies appear cheaper than their lower quality peers.

Our Q1 letter discussed what worked during the quarter but on the back of the economy reopening in the U.S. there has been a run up in prices of lower quality companies with weaker balance sheets. Whether right or wrong, airlines stocks have recovered substantial amounts of their COVID related declines even though international travel may not return to pre-pandemic levels for a number of years, and US passenger miles remain 65% below their year ago period. As the chart below highlights, this has created a wide a divergence in the ratio of the value between high and low quality stocks. This is typical in the early stages after a recession but what it also presents is an excellent buying opportunity for high quality businesses.

As a result of identifying companies with a willingness and ability to deliver high relative dividend growth, the Bristol Gate strategies should be well positioned to take advantage of the reversion of high quality back to the mean.

Important disclosures
Disclaimer: This 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, and 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. 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 www.bristolgate.com.
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