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
– Distressed energy
Our edge? Patience, discipline and the ability to capitalize on the short sightedness of others.
When first embarking on the launch of the Berkshire Dividend Growth Strategy, our research kept pointing to the very tangible benefits of dividend investing. Through this research, we believe a diversified portfolio of high-quality businesses consistently paying and increasing dividends can lead to attractive long term investment results.
Reviewing long-term data, the compounding effect of dividends is somewhat astounding. Data since 1950 though the end of 2020, shows dividends and dividend reinvestment 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 Index with dividends and reinvestment 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.
Founded in 1986, Berkshire distinguishes itself from the competition through our exacting investment philosophy and process. We also offer high quality client service with personalized investment advice.
Berkshire Asset Management, LLC (“BAM”) is a Registered Investment Advisor under the Investment Advisors Act of 1940. Registration as an Investment Advisor does not imply any level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. Access to BAM is only available to clients pursuant to an investment advisory agreement and accepting delivery of BAM’s Form ADV Part 2A and 2B. You are encouraged to read those documents carefully. BAM manages portfolios for individuals and institutions. All investing carries risk including risk of principal loss. No statement made herein shall construe investment advice. All statements made herein are opinions of BAM and subject to change. Berkshire assumes no responsibility towards the accuracy of the data included.
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