Income-Equity Strategy

Portfolio Highlights
  • Unfixed Income
    Portfolio companies pay and grow dividends, providing high current income and increasing income over time. By focusing on dividend growth, we help clients meet income needs today and in the future.
  • Dividend Growth — A better “Analyst” than Analysts
    Dividend and dividend increases help confirm past and current financial reports and are one of the best signals from management about current and future prospects for a company.
  • Diversified Compounding Machine
    Over time, it is compounding income — not style, sector, or asset classes — that is a main driver of long-term returns. Investors can reinvest income and dollar cost average, earning on both their original investments and also on their earnings.
Portfolio Overview

Income-Equity Strategy is a diversified, dividend-growth equity portfolio that seeks high current dividend income plus growth of income and principal. Stocks are primarily US based, multi-cap companies from across the broad equity market. In the portfolio, 25% can be invested in foreign stocks that trade on US exchanges (ADRs) and up to 25% can be exchange-traded Master Limited Partnerships (MLPs).

This strategy has the potential to provide “unfixed income” from stocks with high current yields and growth of cash flow from dividends. Investors seeking solid total returns that comprise both income and growth, high current income that may increase every year, potential for inflation protection, and a lower federal tax rate on qualified dividends will find this strategy attractive. Because this version of Income-Equity includes MLPs, it will generate K-1 tax reports.

Investment Philosophy

Consistent with our firm philosophy, this portfolio invests in financially strong companies with rising dividends. Our disciplined investment process focuses on compounding income — not style, sector, or asset allocation — which is the main driver of long-term returns. Many studies, including our own, show that dividend-paying stocks have historically outperformed non-dividend-paying stocks, and companies that increase their dividends tend to perform the best. Stock prices may fluctuate, but dividends, when paid, are always positive. And unlike bonds (with static income), equities with growth of income help protect investors from the ravages of inflation. Even a “tame” inflation rate of 2.5% can destroy almost two thirds of an investor's purchasing power over 20 years.

Portfolio Objective

Our investment objective is to provide high current income, growth of income, and growth of principal as conservatively as possible while investing in the equity markets. We seek to add value to our clients’ overall investments by lowering volatility, raising the income level, and enhancing total return.

Portfolio Strategy

This portfolio, as with all of our strategies, is team managed. We invest in stocks with solid financial strength (investment grade or better) and moderately steady growth. Our holdings have consistent and reliable business models and a history of high and rising dividends that we project will continue to grow. We focus on essential services, low-cost producers, niche companies, and companies with outstanding consistency in their earnings and dividends. This helps ensure that return expectations are realistic and achievable. Stocks are sold when: a company fails to increase dividends with no reasonable excuse; there is deterioration in a company's fundamentals; a stock exhibits extended overvaluation; there is a negative impact from a regulatory decision; or we need to make room for a more attractive investment.

Strategy Inception Date: June 1997
Portfolio Manager: MHI Investment Team

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