Strategy Marketing Material

Dividend Strategy Guide 9.30.2024
Dividend Strategy Scorecard 9.30.2024
Dividend Strategy Fact Sheet 9.30.2024
Dividend Strategy Commentary 9.30.2024

 

What’s Different? – A “Forward Looking” Approach to Dividends…

We believe there is an epidemic for managers and funds in the dividend and dividend growth space. Countless processes begin with over simplified screens – “We screen for companies that have a dividend yield of 4%” or “We screen for companies that have raised the dividend for 10 years straight”. Our view — Simple screens of historical data may fail to capture the full dividend growth opportunity set…

Berkshire’s Process: Identify perennial dividend growers before they are fully recognized by the market using a “Forward Looking” bottom-up selection process:

Understand how a business generates free cash flow by decomposing ROE components
Model future income statement, balance sheet and free cash flow
Measure dividend growth potential by analyzing capital structure & future payout ratio
Own tomorrow’s dividend growers trading at discounts to intrinsic value estimates

Some of our highest conviction dividend growth stories would have flunked traditional backward-looking screens at time of Berkshire’s purchase*:

Emerging tech and health care businesses
High quality financials
Contrarian energy

Our edge? Patience, discipline and the ability to capitalize on the short sightedness of others.

The Power of Compounding Dividends — Hard to Ignore…

When launching the Berkshire Dividend Growth Strategy, our research pointed to the very tangible benefits of dividend investing. This research leads us to believe a diversified portfolio of high-quality businesses consistently paying and increasing dividends can lead to attractive long-term investment results. In fact, the compounding effect of dividends is somewhat astounding. Data since 1950 though the end of 2020, shows dividends and dividend reinvestments have made up a significant portion of the S&P 500’s total return. Over this time, the S&P 500 Price Index has returned roughly 17,000% while the S&P 500 Total Return Index (dividends and dividends reinvested) has returned 160,000%. Concluding, it is hard to ignore the pure compounding effect of dividends and dividend reinvesting. (Source: Bloomberg)

 

For illustrative purposes only. Graph assumes a 70-year time horizon. The S&P 500 index returns are provided to represent the investment environment existing during the time periods shown. For comparison purposes, the index does not include any trading costs, management fees, or other costs, and the reinvestment of dividends and other distributions is assumed. An investor cannot invest directly in an index. Dividends are not guaranteed, and may be subject to change. The return shown may not be representative of the Berkshire Dividend Growth strategy. Growth rates of dividends vary and illustration may not be indicative of future returns. Investors should carefully consider investment objectives, risks, charges and expenses. Additional information can be obtained from a financial professional and should be read carefully before investing. Dividends and yields represent past performance and there is no assurance they will continue to be paid in the future. Platform restrictions may apply. “Forward Looking” does not imply a level of skill, however the term is used to reference the way we approach our analysis of individual companies. Berkshire retains the right revise or modify portfolios and strategies if it believes such modifications would be in the best interests of its clients. Model portfolios may or may not contain any specific security at any time, and decisions to invest should not be made based on the presumed or current composition of any model portfolio.