- 30-45 undervalued large cap stocks (primarily U.S. companies)
- Low P/E with growing earnings & dividends potential
- High current dividend yield (target of above 3%)
- May invest in ADRs
The High Dividend Value Equity strategy, launched in 1994, invests in large capitalization equities with low Price/Earnings and Price/Book ratios, along with High Dividend Yields; this disciplines value approach aims to deliver strong long-term capital appreciation and above-average income with significantly less volatility. The strategy's competitive, risk-adjusted returns over full market cycles are driven by strong upmarket capture and consistent down-market protection.
The strategy's foundation is built on three primary investment disciplines, which have remained consistent since the strategy's inception:
- Low P/E Discipline
First, the strategy invests in equities that trade at a significant discount to the market, which provides multiple expansion potential, while also seeking to protect capital in down markets.
- High Dividend Yields
Second, each investment in the portfolio offers a dividend yield of at least 3% at initiation. Dividends have contributed nearly 40% to total equity returns over the last 70 years and provide meaningful downside protection.
- Strong Dividend Growth
Lastly, the strategy seeks to invest in companies that consistently grow their dividends - an indication that the underlying business is attractive and growing. The portfolio is concentrated, investing in 30-45 stocks, but also diversified with exposure to each sector of the market.
The Schafer Cullen investment team relies heavily on fundamental research as part of its investment selection process. Because the firm has a disciplined value investment philosophy, a rigorous review of company fundamentals vs. industry peer and the overall market is an important part of the investment process.
Screen for Value:
- Begin with largest 2,000 publicly traded equities
- Typical market capitalization > $5 B
- Sector and Industry Inflection Points
- Screen for stocks in bottom quintile according to P/E and P/B basis
- High dividend yield
- Seek low debt to equity and high returns on investable capital
- Search for catalysts that can drive earnings, including:
- New markets
- New products
- Strong management with clear vision and commitment to shareholder value
- Approximately 30-40 holdings
- Diversification across 15-20 industries
- No more than 4% in any one stock at cost
- No more than 15% in any one industry at cost
- No more than 30% in any one sector at cost
- Top 10 holdings typically represent 35 – 40%
- Up to 25% international exposure (ADR) at cost
- P/E multiple not justified by EPS growth rate
- Deteriorating fundamentals or negative change in investment thesis
- Decline in dividend yield below 2%
- Cuts in dividend policy