about 4 years ago • 2 mins
Income investors focus on the regular dividends paid out by stocks, rather than uncertain share price growth. But the managers of the market-beating Guinness Atkinson Dividend Builder Fund counsel against simply seeking out high “dividend yield” – the annual profit-sharing of a company as a percentage of its share price – in favor of a different (and subtler) strategy.
They instead track down businesses with a history of consistently raising dividends – which may be more likely to do so in the future. One important clue is a high return on capital of more than 10% for each year over the past decade, demonstrating smart self-investment at a company. Moderate dividend yields, meanwhile, suggest room for sustainable growth – and relatively low debt means a firm is unlikely to have to cut back to pay the bills. Stocks that are cheap relative to their peers are also favored 👏
Beyond seeking out companies that look likely to grow their dividends over time, the Guinness Atkinson managers recommend concentrated bets: investing in 35 well-researched stocks, rather than 100, can help avoid bad apples. They also favor international diversification, with a roughly 50:50 US/overseas stock split, and long-term holdings: only a quarter of the fund’s investments change each year, and a third have been fixtures since 2012.
For income-focused investors, the managers’ advice is simple: don’t look at the dividend itself, but the company paying it. And that approach has worked: over the past three years, they’ve beaten their global MSCI ACWI Index benchmark by an annualized 1.4 percentage points 😋
With recession fears rising in some parts of the world, the fund’s success is a reminder that focusing on key numbers – rather than simply following the crowd – can pay off for some investors.
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