High-Dividend Equity Investments
The GIM equity selection process is driven by four core principles:
- Price to earnings ratio that is below that of most equities.
- Low price to book ratio.
- A high-dividend yield that is currently sustainable.
- Underowned by major institutions.
We first look for equities that can deliver at least a 10% total rate of return annually with half of that return coming from dividends. This is the starting point in the research process and involves running quantitative screens on FactSet and William O’Neil databases, analyzing comparable groups of high-dividend paying stocks and reviewing third party research.
Next we focus on companies with a history of stable and growing dividends. Dividend growth is a core value driver for income securities. This requires a deep dive into the financials of each company including: interviewing management, reviewing SEC filings, building financial models, analyzing trends in growth, margins, cash flow and leverage, and performing other fundamental research on each individual company.
Lastly we try to invest with a margin of safety. We look for companies trading at low price to book multiples, low price to earnings multiples, high dividend yields, discounts to comparable companies or discounts to historic multiples. By applying these value disciplines to our equity selection process we believe losses will be limited and upside more pronounced once the value in these securities is recognized by the broader market.
We believe the best opportunities to find undervalued securities and have an "edge" is in smaller cap names that may not be widely followed by Wall Street and are often underowned by institutions. We have historically been very successful at finding small companies that meet our criteria for quality and building a position before the broader market recognizes the value we see.