Segment Tax-Efficient Rising Dividend Strategy

Overview

The Segment Tax-Efficient Rising Dividend Strategy invests in US listed companies that have a track record of paying and growing their dividends. The Strategy seeks to be tax-efficient by reducing turnover, deferring capital gains and via tax loss harvesting. The strategy typically consists of 40 to 50 large-cap stocks that have dominant market positions and a proven track record of high profitability and free cash flows generation. The strategy is actively managed but with constraints that seek to retain some of the advantages of passive investing.

Philosophy

We believe individuals or institutions with a long-term investment horizon (10 to 20 years and beyond) can generate strong future income and capital appreciation by owning a portfolio of stocks with reliable and growing dividends. We are strong believers in passive investing and understand the limitations of active management. However there are meaningful tax and cost advantages to owning stocks directly, by way of charitable giving, deferring taxes on gains, or ideally a tax-free step up in basis at death. Also, by actively picking stocks we are able to customize our portfolio to meet our long-term investment objective of income generation and capital preservation. The strategy is built with that long-term view and selects companies that have a prominent market position and defendable market share. However we don’t stray far from passive indexes by managing sector exposures and limiting position sizes. Our goal is to create a portfolio that has a high correlation with the S&P 500, with lower standard deviation and a higher dividend yield.

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For illustrative proposes only and not based on actual stock outcomes. Assumes all income is reinvested annually and that market prices remain unchanged. After-tax income based on 22% rate on dividends and 35% rate on interest.

Investment Process

Stocks are screened for valuations, revenue/ earnings/ dividend growth, payout ratios, estimate revisions, stock price momentum, margin consistency etc. The strategy seeks to invest in companies that have a high long-term visibility on earnings driven by barriers to entry, cost/ technology leadership and industry growth trends. Paying a dividend is required for a security to be admitted into the portfolio. A stock that cuts its dividend after being added to the strategy may be held depending on future expectations of a dividend reinstatement. Security weights are limited to 5%. Portfolios are equal weighted at inception, with the exception of a few lower weight holdings. The portfolio consists of mainly large cap companies but does have a smaller allocation to mid-cap companies.