Schafer Cullen SMID Dividend Value Equity


SMID Dividend Value

  • Strategy Summary

Investment Strategy

  • 30-40 undervalued small and mid-cap stocks (primarily U.S. companies)
  • Low P/E and earnings growth potential
  • Above-average dividend yield and dividend growth
Russell 2500® Value
Inception Date
Mar 31, 2020

Strategy Attributes

The Schafer Cullen SMID Dividend Value strategy invests in small and mid-cap equities with low Price/Earnings and Price/Book ratios, along with strong Dividend Yields; this disciplined value approach aims to deliver strong long-term capital appreciation and above-average income with significantly less volatility.

The strategy’s foundation is built on four primary investment disciplines:

  • Low P/E Discipline
  • Higher Dividend Yields
  • Strong Free Cash Flows
  • Strong Dividend Growth

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. Second, each investment in the portfolio generally offers a dividend yield and free cash flow yield above the Russell 2500 Value at initiation. Dividends have contributed nearly 40% to total equity returns over the last 70 years and provide meaningful downside protection. Lastly, the strategy seeks to invest in companies with strong balance sheets that consistently grow their dividends – an indication that the underlying business is attractive and growing.

Investment Process

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.

Jim Cullen, Portfolio Manager

Screen for Value:

  • Bottom-up approach that begins with a universe of 2,500+ stocks with a market capitalization generally below $15 billion
  • Seek out companies with price-to-earnings (P/E) ratios less than the Russell 2500 Value with long-term earnings growth in the mid-to-high single digits or higher annually
  • Look for companies with strong dividend and free cash flow yields, strong dividend growth potential and moderate payout ratios

Fundamental Research:

  • Quantitative and qualitative analysis focused on earnings growth drivers, balance sheet strength, cash flow consistency and improving returns
  • Identify catalysts that unlock shareholder value or drive earnings growth
  • Dominant or leading position in industries with stable market shares
  • Meetings and discussions with management, industry analysts, suppliers and customers
  • Management committed to disciplined capital allocation and sustaining dividend payouts

Portfolio Construction:

  • Diversification across approximately 30-40 stocks
  • No more than 5% invested in any one stock at cost
  • Diversification across 15-20 industries
  • No more than 20% invested in any one industry at cost
  • Above-average dividend yield and dividend growth
  • Generally fully invested

Self Discipline:

  • Price to earnings multiple not justified by earnings growth rate
  • Deteriorating fundamentals or negative change in operating environment
  • Dividend cuts, negative change in dividend policy or significant decline in yield due to price appreciation

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