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
Portfolio Managers
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
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.
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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