Why Income Based Investing
Many clients, particularly those nearing or in retirement, seek reassurance that they can maintain their standard of living without unnecessary financial stress. Similarly, business owners undergoing liquidity events often aim to replicate the reliable income streams they once relied upon from their businesses.
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Dividends play a crucial role in helping investors weather challenging market conditions without becoming forced sellers of undervalued securities. When executed effectively, income-based investing provides steady, predictable, and recurring cash flows. At its core, the value of any business is tied to the present value of its future cash flows, and dividends offer a tangible, reliable way for shareholders to be compensated for their ownership.
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Over time, our unique income-focused strategy has consistently outperformed the S&P 500, delivering not only strong returns but also peace of mind for our clients.
The Results
The Investment Process
Over the past 25 years, the returns of our active income strategy (orange line) have consistently and significantly outperformed the S&P 500 (white line).
We begin by focusing on companies with a market capitalization of at least $2 billion and a dividend yield between 3% and 10%.
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Our next priority is identifying companies with consistent dividend growth, as those that grow their dividends tend to outperform those that merely maintain a high yield. We target companies with a historical dividend growth rate of at least 5% per year, as this indicates a commitment to returning value to shareholders and robust underlying financial health.
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We then conduct a detailed analysis of the fundamentals, assessing each company's business model and its capacity to sustain and grow dividends across economic cycles. This involves examining performance during past cycles, the firm’s financial position, capital expenditure intensity and timing, and normalized free cash flow relative to dividend payments.
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Next, we evaluate the trade setup by analyzing technical indicators to identify attractive entry points that align with our long-term objectives.
Finally, we construct a diversified portfolio spanning every sector, ensuring balanced exposure and optimizing the trade-off between risk and return. We monitor the portfolio daily and tend to rebalance monthly based on names falling below the 3% yield threshold or new ideas....