Large Cap Dividend Growth

A long-only, total-return focused, large-cap core equity strategy invested exclusively in the stocks of companies with a history of consistent annual dividend increases to build a diversified, high-conviction portfolio of 25-35 stocks with a higher than average current yield and growing streams of income over time.

The objective of the Large Cap Dividend Growth strategy is to outperform its S&P 500 Index benchmark on a net of fees basis over a full market cycle and at lower levels of risk, as defined by standard deviation of returns.

INVESTMENT PHILOSOPHY

Campbell Newman’s core investment philosophy is that earnings growth drives stock prices.

The Large Cap Dividend Growth strategy uses a company’s dividend policy as tangible evidence of management’s confidence in future earnings growth. Companies that increase their dividend year after year are providing investors with a strong signal about their business’ prospects and earnings visibility. Additionally, Campbell Newman believes the price paid for any asset is a major determinant of that investment’s expected return.

INVESTMENT PROCESS

The investment process begins with a quantitative screening of the Zack’s approximately 8,500 company database to create the active research universe. The minimum standards are:

  • Projected earnings growth rate of 6% or greater
  • Return on equity of at least 10%
  • Minimum market cap $1 billion
  • Average daily trading volume > 200,000 shares
  • Investment-grade bond rating
  • Annual dividend increase for past 5 years

This screen produces an active research universe of between 150 – 175 companies.

The investment team then conducts proprietary in-house research on the stocks that meet the criteria outlined above. The objective of this research is to determine whether or not the company’s business model can generate earnings that meet or exceed consensus estimates.

The team gathers information on the company from primary sources first, by listening to conference calls and reviewing transcripts, as well as other financial disclosures. For each company, the team will assess fundamentals, including business strategy, competitive position and the quality of earnings and cash flow. This work is an attempt to determine each company’s ability to generate future earnings growth and the catalysts for such growth, as well as identify instances where price does not reflect the positive fundamentals.

The decisions regarding the selection of specific issues are determined on a team basis with all changes to the portfolio requiring a unanimous vote.

PORTFOLIO CONSTRUCTION

A high conviction portfolio with a minimum of 25 and no more than 35 stocks. Positions are generally initiated at 2%. The maximum individual holding weighting is 5%. Sector weightings are limited to 2x the benchmark for sectors that have a 10% or greater weight in the benchmark. There is no minimum threshold for sector weightings and cash is a residual of bottom-up research process.