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Fully understanding a company's ability to generate cash and
sustain stock buybacks and payouts to shareholders over time is
the bedrock philosophy at Epoch Investment Partners, which
oversees about $20.7 billion using this investment strategy.
"Boring is amazing, we take it as a compliment," Kera Van Valen,
a portfolio manager of both the U.S. and global equity
shareholder yield portfolios at Epoch, told the Reuters Global
Investment 2019 Outlook Summit in New York on Tuesday.
"In our strategy we don't focus on multiples," Van Valen said,
referring to price-to-earnings ratios that are an investing
benchmark on Wall Street. "From our perspective it's more about
the dividend yields that the companies offer."
The surge of the FANG stocks - Facebook Inc, Amazon.com Inc,
Netflix Inc and Google's parent Alphabet Inc - has captivated
Wall Street in recent years, but they don't pay dividends so Van
Valen has not rode that wave.
"You could understand the growth in some of the companies, some
it's harder to understand," she said.
But Van Valen is very interested in technology as long as she
can understand how it is driving cash flows to return to
shareholders or reinvested to spur a company's growth.
"It's a great thing because we'll continue to see companies be
able to sustain higher dividend payout ratios, be able to return
excess cash to shareholders through share repurchases," she
said.
About two-thirds of the 100 companies that each portfolio holds
increased their dividends 7.1 percent so far this year, Van
Valen said.
That rate was higher than last year, partly due to U.S. tax
reform, but Van Valen does not expect the rate to change
dramatically for her holdings in the near future even as
earnings growth likely slows to single digits.
Van Valen looks for managements that have a well-articulated
capital allocation policy so as the company grows, the cash
distributions back to shareholders will grow. The average
holding period for stocks in the two portfolios is about five
years with low turnover.
The shareholder yield portfolios include utilities, staples,
telecoms and increasingly financial stocks that profit from
traditional loans and not harder-to-understand trading desks.
Van Valen added BB&T Corp to the portfolio earlier this year.
Follow Reuters Summits on Twitter @Reuters_Summits
(Reporting by Herbert Lash; Editing by Phil Berlowitz)
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