Dividend Growth Strategy

Dividend Growth Strategy


A substantial portion of shareholder returns have been derived from dividends. Our Dividend Growth strategy invests in companies that pay their shareholders dividends—and can grow those dividends, primarily through pricing power and a well-executed corporate strategy.

The benefit of investing in a strategy that generates a growing stream of dividends is that it mitigates the need to focus on market volatility, timing and risk. Our clients (shareholders) should continually receive a growing stream of cash from their portfolio and own shares of great companies that have the potential to appreciate in price over time.

Desired Attributes – We look to invest in companies that are stable, mature, dominant and that earn high profits and pay out cash dividends with a capacity to grow them. These companies often share certain key traits: management teams that allocate their capital in a disciplined way, a thoughtful corporate strategy, and strong underlying fundamentals. This is about much more than just current yield — these investments must offer appreciation potential and be able to grow their dividends. We generally avoid investments with depleting assets.

Value – We apply the same valuation methodology to the Dividend Growth strategy as we do to the Capital Appreciation strategy. It is important to note, however, that one beauty of dividends is that they are true cash taken in by the company and paid back out to the shareholders. Dividend payments cut through and eliminate many accounting shenanigans that companies can employ to overstate their earnings, so in general, dividend-paying stocks carry a bit less accounting risk than non-dividend payers.

Conservatism and Margin of Safety – We seek a margin of safety in the stocks of the Dividend Growth strategy, but dividend paying stocks can be sensitive to interest rate changes. We seek companies that will thrive and be able to support and increase their dividend in a rising rate environment.

It is interesting to note that over an extended period, stocks that initiated or increased their dividends outperformed other stocks with no dividend policy.

Only companies that pass our rigorous value criteria make it into the Highgate Dividend Growth strategy. The Highgate investment team chooses companies—or eliminates them—following careful evaluation of each company's:

  1. Dividend-growing track record and ability to sustain that growth;
  2. Ongoing business performance and how well it meets the Highgate standards; and
  3. Stock price and the discount where it trades versus Highgate’s measure of intrinsic value.

Our sophisticated stock selection approach coupled with thorough ongoing oversight creates a strategy with low investment turnover. It is designed to help you achieve your financial objective of receiving cash and participating in long-term appreciation.