Dividend Growth: Our Litmus Test for Portfolio Durability

At Reaves, we believe one of the clearest signals of a company’s strength and durability is one of the easiest to read: dividend growth. It’s by no means the only way to gauge a company, but a management team’s willingness to grow the dividend says a lot about its confidence in the ability to grow future cash flow.

Dividend growth is also an important source of protection if we enter a period of rising inflation. Unlike bonds, which typically pay a fixed rate of income, stocks that are regularly able to increase quarterly dividend payments provide a powerful compounding effect for a portfolio. A growing stream of dividend income in a portfolio can help to reduce or eliminate any negative impacts from higher inflation.

To get a sense of the durability of the companies in our portfolio relative to the rest of the market, we periodically show their dividend growth relative to other companies in the sector in which they operate.

In the tables below, we have sorted the companies in Reaves’ LTV Wrap Composite1 by sector2, showing their dividend growth for the annual period ending June 30, and comparing it to the average dividend growth rate of their respective sector within the S&P 500 Index3.

Through the 12-month period, 17 of the 19 dividend-paying stocks in our portfolio raised their dividend, and two others held their dividend at the same rate as a year ago. In aggregate, our holdings’ dividend growth exceeded the sector average for each sector in which we invest.

We believe these companies’ ability to grow dividends in excess of the broader sector speaks to their strength and aligns with our investment objective to generate both capital appreciation and income growth.

Industrials

The table below shows the annual dividend increase for each Industrial stock owned as of June 30, 2021 in a composite of wrap portfolios1 managed with the Reaves Long Term Value Strategy.

2021.07 Reaves Blog 59 Industrials Table

 

Utilities

The table below shows the annual dividend increase for each Utility stock owned as of June 30, 2021, in a composite of wrap portfolios1 managed with the Reaves Long Term Value Strategy.

2021.07 Reaves Blog 59 Utilities Table

 

Real Estate

The table below shows the annual dividend increase for each Real Estate stock owned as of June 30, 2021, in a composite of wrap portfolios1 managed with the Reaves Long Term Value Strategy.

2021.07 Reaves Blog 59 Real Estate Table

 

Communications Services

The table below shows the annual dividend increase for each Communications Services stock owned as of June 30, 2021, in a composite of wrap portfolios1 managed with the Reaves Long Term Value Strategy.

2021.07 Reaves Blog 59 Comm Services Table

 


The Case for Essential Service Infrastructure

Disclosures:
Reaves Asset Management is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply any skill or training. Reaves is a privately held, independently owned “S” corporation organized under the laws of the State of Delaware.

The information provided in this blog does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities and sectors listed. Investors should consider the investment objective, risks, charges and expenses of all investments carefully before investing. Any projections, outlooks or estimates contained herein are forward looking statements based upon specific assumptions and should not be construed as indicative of any actual events that have occurred or may occur.

1Beginning December 2019, Reaves LTV Strategy is represented by the LTV SMA Wrap Composite. This composite contains those LTV discretionary portfolios with wrap (bundled) fees. Wrap accounts are charged a bundled fee which includes the wrap sponsor fee, as well as, Reaves’ investment advisory fee. Due to compliance requirements, the net-of-fees calculation is computed based on the highest annual fee assigned by any wrap sponsor who utilizes this portfolio in an investment wrap program (300 basis points from 1/1/03 through 12/31/16 and, effective 1/1/2017, 250 basis points). The LTV SMA Wrap Composite performance consists of money-weighted, time-weighted returns and it includes the reinvestment of all dividends and other earnings. The inception date of the composite is December 2002; however, the composite was created in January 2013. This composite has been managed in a similar manner to the LTV ERISA Composite which ended in December of 2019. The LTV SMA Wrap Composite does not represent all of Reaves’ assets under management.

2Fortis Inc. and NiSource Inc. were excluded due to minimal position size.

3The S&P 500 Index (“S&P 500”) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The typical Reaves portfolio includes a significant percentage of assets that are also found in the S&P 500. However, Reaves’ portfolios are far less diversified, resulting in higher sector concentrations than found in the broad-based S&P 500.

4The S&P 500 Industrials Index comprises those companies included in the S&P 500 that are classified as members of the industrials sector.

5The S&P 500 Utilities Index is a capitalization-¬weighted index containing electric and gas utility stocks (including multiutilities and independent power producers). Prior to July 1996, this index included telecommunications equities.

6The S&P 500 Real Estate Index comprises stocks included in the S&P 500 that are classified as members of the real estate sector.

7The S&P 500 Communication Services Index comprises those companies included in the S&P 500 that are classified as members of the communication services sector.

Past results do not guarantee future performance. Further, the investment return and principal value of an investment will fluctuate; thus, investor’s equity, when liquidated, may be worth more or less than the original cost. This document provides only impersonal advice and/or statistical data and is not intended to meet objectives or suitability requirements of any specific individual or account.

All investments involve risk, including loss of principal. All data is presented in U.S. dollars.
Cash is cash and cash equivalents.
An investor cannot invest directly in an index.
Important Tax Information: Reaves Asset Management and its employees are not in the business of providing tax or legal advice to taxpayers. Any such taxpayer should seek advice based on the taxpayer’s own individual circumstances from an independent tax adviser.
Fees: Net performance reflects the deduction of advisory fees which are described in detail in our Form ADV Part 2A.

Please contact your financial professional, or click the following links, for a copy of Reaves’ Form ADV Part 2A and Form CRS .

Additional information about Reaves may be found on our website:  www.reavesam.com.

2021 © Reaves Asset Management (W. H. Reaves & Co., Inc.)

 

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