By: Mark Suhay, CAMS Dividend Income Portfolio Manager
What Do We Do?
We look for the best, fundamentally-sound, 15-20 dividend-paying securities in a variety of industries (striving for diversification), customized to include some local and regional choices, and strive to add some negative correlation during periods of increased volatility or when research points to increased probability of a protracted downdraft which has the potential of negatively impacting the long-term value of the portfolio.
How Do We Do That?
Security Selection – Pick the best, prune the rest
Actively monitor every holding for breakdowns on charts & fundamentals
The above chart depicts how tightly correlated the S&P 500 (red) is to the S&P 500 Dividend Aristocrats (a dividend index, black – Click here for more information). The dividend index (black line) can outperform during periods when those types of stocks are highly in favor (like most of 2016), but at other times, will mirror the S&P. At Cornerstone, we strive to maintain gains in the portfolio by ‘pruning’ the securities that we hold in order to preserve value.
The CAMS Dividend Income Portfolio – Great Lakes Region’s exposure to the equity markets has been scaled back through the above discussed ‘pruning’ process. Positions in stocks have been sold off due to concern with issues surrounding the respective company, such as:
General Electric Co. (GE) – high dividend payout relative to historical levels for GE
Kellogg Co. (K) – again a high dividend payout relative to historical levels and concern over slowing sales of traditional breakfast foods
Bank of Montreal (BMO) – concern with highly-inflated Canadian real estate prices
ConocoPhillips (COP) and Chevron Corp (CVX)- concern with dim outlook for oil prices due to over-supply dynamics
With valuations (Price/Earnings Ratios) on the S&P 500 near historical highs, we view it as prudent to create a larger cash position through the pruning of stocks with fundamental flaws and/or adverse technical signals. These stocks pose a greater downside risk than others if the markets suffer a significant pullback. The stock price of companies that may be artificially inflated as a result of a relatively high payout ratio and/or dividend yield could also feel greater pain in a downturn.
The Dividend Income management team is continually examining the companies that have been pruned along with new candidates as possible replacements.
Please check out our Portfolio Fact Sheet – CAMS Dividend Income Portfolio – Great Lakes Region or contact your advisor if any further information is needed.
Sincerely, Mark Suhay Associate Portfolio Manager, Dividend Income Portfolios
If you would like more information on our various approaches and products please contact us for direct communication at 877-514-9477 or Stephanie@cornerstoneassetmgmt.com.
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