Dividend Policy, Production and Stock Returns: A Dividend ...
BMO Global Dividend...2014 2013 2012 2011 2010 2009 2008 2007 Guardian Global Dividend 16.16 23.52...
Transcript of BMO Global Dividend...2014 2013 2012 2011 2010 2009 2008 2007 Guardian Global Dividend 16.16 23.52...
BMO Global Dividend
September 2015
Sri Iyer, Managing Director, Systematic Strategies
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Stability, Vision, Results
Trust and stewardship
Long-term investors
Client focused
At Guardian Capital, we value our
clients’ trust and view
stewardship of their assets as
our primary responsibility.
We invest with the confidence that
comes from a highly disciplined
investment process and a
constant awareness of risk and
fiduciary responsibility.
Our strength is our culture,
enabling our stability and a long-
term focus.
•Servicing Investors Since 1962
Guardian Capital Profile
• 129 Institutional clients
•$23.2 Billion*
Clients
•Equity Strategies
•Fixed Income Strategies
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Strategies
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•38 Management and Administrative Associates
Team
* Guardian Capital LP as at June 30th, 2015
** Through Guardian Capital Real Estate Inc.
2 Sources: MSCI World - Morgan Stanley
Top-Down Architecture: What it
means to you
Region, country, size and style has diminished as alpha sources
Industry groups and sectors now at the forefront of alpha generation
Bottom-up stock selection is key
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Industry Group Sector Style Size Country Region
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Dividends: The Largest Contributor to
Total Return
Long-term trend
Dividends have been the largest contributor to total returns and ERP over the long-term
This secular trend is expected to continue
Dividend as an asset class calls for a routine quality assessment of cash flow sustainability of a company
MSCI Total Return Indices are calculated With
Gross Dividends:
Gross total return indices reinvest as much as
possible of a company’s dividend distributions. The
reinvested amount is equal to the total dividend
amount distributed to persons residing in the country
of the dividend-paying company. Gross total return
indices do not, however, include any tax credits.
MSCI World, Figures provided are in USD
Date Range: 31/12/1969 – 09/03/2015
66%
MSCI Country Indexes: MSCI Canada, MSCI UK, MSCI US, MSCI Japan, MSCI Germany MSCI Australia
Date Range: 31/12/1969 - 09/03/2015, Base Currency
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Comparing Fundamentals Globally: Relative
Common factors across 10 global sectors
Applied to over 3000 stocks
Rates of Change of Fundamentals (Delta)
By using a set of common factors, we focus on sectors regardless of geography.
Each of 10 sectors has its own model, allowing Guardian to buy best-in-class stocks within each sector.
By comparing rates-of-change in company fundamentals we are able to see through the differences in accounting standards globally.
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GPS: Empirical evidence
Top Quintile Dividend Growers (red) out performed
Top quintile Earnings growers (green)
• investors reward a growing and stable payout
of earnings
• strategies ( Orange and Blue) that combine
top quartile dividend and earnings growth
significantly out perform single factor
approaches
Performance of dividend payers within Broad U.S Market Index
Companies with high payout ratios
almost uniformly underperform
• avoiding payout tails is important for
sustainability of dividends
Cumulative performance Factor Rank IC
Earnings
growth
coupled with
Dividends
performs
best
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Our main thesis – stock prices revert around a Beta
captured by:
consistent cash flow
reduced estimation error
and a risk adjusted forward looking discount rate
Equity Duration
• Intrinsic Value
• Cash flow Value
• Terminal Value
• Market to Model Ratio
• Cash flow weight
Intrinsic: Cash Flow
Comparing Fundamentals Globally: Intrinsic
Unlike bonds, the cash flows that equity investors anticipate
receiving must be estimated and thus are less certain.
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rowth Dividend growth is a significant factor for long term returns and depends on consistent earnings growth
ayout Quality over Quantity through balance sheet management
ustainability A Globally competitive revenue stream and margin efficiency to sustain strong ROE and dividends
Yield carry and stock selection as alpha drivers
Emphasis on dividend growth and sustainability through a combination of relative and intrinsic valuations across different Global factor buckets
Avoid yield for yield sake by looking at a stocks cash flow visibility and estimation risk of terminal value
Early Stage Rapidly Increasing Growth
Steady Growth
Mature Growth GPS
Traditional
Investable Universe: All stocks in MSCI ACWI and REITs
that pay dividends regardless of where they are on the
evolutionary chart
Philosophy: How to capture the jump from
bonds to stocks
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High Yield
Dividend
Payers Dividend
Growers Dividend
Achievers
Low Yield
High Growth
Three Primary Dividend Classes
1. Dividend Payers
⁻ High yield, stable cash flow, modest dividend growth ⁻ Cash flow allocated primarily to dividends and balance for
debt re-placement and capex
2. Dividend Growers
⁻ Low to Median yield, good cash flow growth, solid dividend growth ⁻ Cash flow allocated evenly to dividends and re-investment for
further growth, uses buybacks also.
3. Dividend Achievers
⁻ Lower yields, steady cash flow growth, residual policy for dividends ⁻ Cash flow allocated primarily to re-investment for growth and meet
payout targets, uses buybacks significantly
Low Growth
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Portfolio Review – BMO Global
Dividend As at August 31st, 2015
*Benchmark: 100% MSCI World
GICS SECTOR Weight Dividend Yield
Portfolio Benchmark* Portfolio Benchmark*
Financials 16.33% 20.82% 3.76% 3.10%
Consumer Staples 14.63% 9.92% 3.53% 2.78%
Health Care 13.63% 13.64% 2.86% 1.89%
Industrials 13.10% 10.72% 2.91% 2.60%
Consumer Discretionary 10.27% 13.16% 2.63% 1.83%
Telecomm Service 9.64% 3.38% 4.44% 4.20%
Information Technology 7.54% 13.31% 2.73% 1.65%
Energy 5.50% 6.82% 5.71% 4.09%
Materials 4.53% 4.67% 3.33% 2.99%
Utilities 4.77% 3.16% 5.22% 4.43%
Overall 3.52% 2.62%
Source: Thomson Eikon
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Portfolio Review – BMO Global Dividend As at August 31st, 2015
Energy Weight Yield Portfolio 5.5% 5.7% Benchmark 6.8% 4.1%
Financials Weight Yield Portfolio 16.3% 3.8% Benchmark 20.8% 3.1%
Healthcare Weight Yield Portfolio 13.6% 2.9% Benchmark 13.6% 1.9%
Industrials Weight Yield Portfolio 13.1% 2.9% Benchmark 10.7% 2.6%
Consumer Discr. Weight Yield Portfolio 10.3% 2.6% Benchmark 13.2% 1.8%
Williams Companies Total Royal Dutch Shell Pembina Pipeline Corp Kinder Morgan Keyera Corp Eni Spa Conocophillips Chevron Corp BP
Westpac Banking Corp Wells Fargo & Co Swedbank Sumitomo Mitsui Financial Group Spirit Realty Capital Skandinaviska Enskilda Banken Royal Bank Of Canada Prudential Munich RE Mitsubishi UFJ Financial Group Legal & General Group Plc JPMorgan Chase & Co Goldman Sachs Daiwa Securities Biomed Realty Trust AXA ANZ Banking Group Ltd
Teva Pharmaceutical Sonic Healthcare Ltd Pfizer Novartis Merck & Co Inc Medtronic Johnson & Johnson Glaxosmithkline Gilead Sciences Inc Bayer Astrazeneca Amgen Abbvie
Waste Management Sydney Airport Holdings Ltd Republic Services Inc Raytheon Co Lockheed Martin Corp Illinois Tool Works General Dynamics Corp Ferrovial FANUC Corp CSX Corp BAE Systems
Walt Disney Co VF Corp Starbucks Corp Six Flags Entertainment Corp Prosiebensat 1 Media Newell Rubbermaid McDonald's Corp Macys Genuine Parts Co Fuji Heavy Industries Ltd Daimler Ag
Util it ies Weight Yield Portfolio 4.8% 5.2% Benchmark 3.2% 4.4%
Telecom Weight Yield Portfolio 9.6% 4.4% Benchmark 3.4% 4.2%
Materials Weight Yield Portfolio 4.5% 3.3% Benchmark 4.7% 3.0%
Information Tech Weight Yield Portfolio 7.5% 2.7% Benchmark 13.3% 1.7%
Consumer Staples Weight Yield Portfolio 14.6% 3.5% Benchmark 9.9% 2.8%
SSE National Grid Duke Energy Corp Ameren Corp
Verizon Communications Telstra Corporation Swisscom Proximus Deutsche Telekom AT&T
Lyondellbasell Industries Dow Chemical BASF SE Air Products And Chemicals
Texas Instruments STMicroelectronics Seagate Technology Microsoft Corp Intel Corp DH Corp ADP Apple Inc
Unilever Reynolds American Procter & Gamble Co Philip Morris International Nestle Kimberly-Clark Corp Imperial Tobacco Group Dr Pepper Snapple Group British American Tobacco Plc Anheuser-Busch InBev Altria Group
Source: Thomson Eikon
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Quality Redefined: European Focus
Source: UBS and GCLP based upon Local Shares Composite
As of July 21st, 2015
Name RIC Dividend
Yield
Equity
Duration Bond issuer
Bond
Maturity
Credit rating
(Moody's /
S&P)
Bond Yield
to Maturity
Bond
Duration
Nestle NESN.VX 3.0 30.55 NESTLE FINANCE INTL LTD 7/19/2019 Aa2 /N/A 0.44 3.9
Royal Dutch Shell RDSa.AS 6.7 18.80 SHELL INTERNATIONAL FIN 03/24/2021 Aa1 / AA 0.87 5.4
TOTAL TOTF.PA 5.5 15.26 TOTAL CAPITAL CANADA
LTD 09/07/2020 Aa1 / AA 0.72 4.8
BASF SE BASFn.DE 3.4 18.24 BASF SE 01/22/2019 A1 / A+ 0.32 3.2
GlaxoSmithKline GSK.L 5.9 17.79 GLAXOSMITHKLINE CAPITAL 12/13/2017 A2 / A+ 0.29 2.2
Unilever NV Unc.AS 2.8 14.46 UNILEVER NV 05/08/2020 A1 / A+ 0.67 4.8
EDF EDF.PA 5.9 9.75 ELECTRICITE DE FRANCE SA 01/18/2022 Aa3 / A+ 1.12 5.8
Eni ENI.MI 7.1 10.63 ENI SPA 11/22/2021 A3 / A /* 1.11 5.8
Daimler DAIGN.DE 2.9 22.43 DAIMLER AG 06/25/2021 A3 / A 0.88 5.6
Bayer BAYGn.DE 1.7 25.84 BAYER AG 01/25/2021 A3 / A 0.77 5.0
National Grid NG.L 5.1 27.07 NATIONAL GRID PLC 10/03/2020 Baa1 / BBB+ 0.84 4.2
Deutsche
Telekom DTEGn.DE .30 24.39 DEUTSCHE TELEKOM INT FIN 07/13/2022 Baa1 / BBB+ 1.25 6.2
BAE SYSTEMS BAES.L 4.4 13.31 BAE SYSTEMS PLC 11/10/2021 Baa2 / BBB+ 3.38 5.3
Imperial Tobacco IMT.L 4.0 13.83 IMPERIAL TOBACCO
FINANCE 02/26/2021 Baa3 / BBB 1.48 5.0
4.4 18.74 1.01 4.8
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Portfolio Composition
Source: Thomson Eikon
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Buybacks – BMO Global Dividend
Company Buyback Yield
LYONDELLBASELL INDUSTRIES NV 11.08
ILLINOIS TOOL WORKS INCORPORATED 8.92
INTEL CORPORATION 5.97
APPLE INC. 5.84
ABBVIE INC 5.52
MCDONALD'S CORPORATION 4.59
GILEAD SCIENCES, INC. 4.56
GOLDMAN SACHS GROUP INC 4.41
PFIZER INC. 4.15
SIX FLAGS ENTERTAINMENT CORPORATION 4.08
% of portfolio with positive buyback yield: 48%
Source: Thomson QAD
12-Months Ending June 30, 2015
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Dividend Growers – BMO Global Dividend
% of portfolio that raised dividends: 60%
Source: Thomson QAD
12-Months Ending June 30, 2015
Company Current DPS Previous DPS % Change
AVAGO TECHNOLOGIES LIMITED 2.114 1.42 48.79
WILLIAMS COMPANIES INC 2.38 1.768 34.65
LYONDELLBASELL INDUSTRIES NV 2.577 1.915 34.56
AMGEN INC. 2.98 2.3 29.57
SEAGATE TECHNOLOGY 2.16 1.72 25.58
STARBUCKS CORPORATION 0.64 0.52 23.08
VF CORP 1.28 1.05 21.9
ROYAL DUTCH SHELL PLC 1.661 1.363 21.8
ABBVIE INC 2.02 1.66 21.69
LEGAL & GENERAL GROUP PLC 0.118 0.098 20.41
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Global Dividend Composite Performance
Annual Rates of Return (%) $CAD
Annualized Rates of Return (%) $CAD
for Periods Ending August 31st, 2015
* Inception Date: January 1, 2007
Past Performance may not be indicative of future performance.
Returns are gross of fees
2014 2013 2012 2011 2010 2009 2008 2007
Guardian Global Dividend 16.16 23.52 7.05 5.75 9.50 16.30 -18.08 -4.20
MSCI World 14.46 35.42 13.61 -5.26 7.07 15.06 -28.36 -8.47
MSCI ACWI 13.61 31.28 13.31 -3.41 6.21 11.09 -26.52 -6.43
1 Month 3 Months YTD 1 Year 3 Year 5 Year 7 Year Since
Inception*
Guardian Global Dividend -4.73 -0.70 9.46 16.64 17.32 14.69 10.16 6.86
MSCI World -5.36 -1.51 11.20 16.75 22.34 16.00 8.48 4.89
MSCI ACWI -5.60 -2.68 10.80 14.13 20.63 14.47 7.89 4.59
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Quality: Hedge against equity volatility
Source: BofA Merrill Lynch US Equity & US Quant Strategy, CBOE, S&P
Correlation of BofAML Quality Indices 12-month returns to 12-month changes in VIX
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A Fundamental Mispricing of Risk
Source: BofA Merrill Lynch US Equity & US Quant Strategy. As of 6/30/15)
Price Beta vs. Earnings risk for S&P 500 Sectors
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Demographics
Source: UN
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Sri Iyer, MBA
Managing Director - Head of Systematic Strategies
Sri joined Guardian Capital in 2001 to help lead the development and implementation of our proprietary systematic equity
portfolio management strategy. Prior to joining Guardian, Sri was with Global Value Investors in Princeton, New Jersey
responsible for a variety of portfolio management and financial engineering roles. Sri graduated with a Bachelor of
Commerce from the University of Bombay in 1989, earned his Chartered Cost and Works Accountant (India) designation
in 1990 and his MBA (Applied Finance) from Rutgers Graduate School of Management in 1994.
Systematic Strategies Team
Adam Cilio, MMF, CFA, FRM
Senior Portfolio Engineer - Systematic Strategies
Adam joined Guardian Capital LP in 2008 as a portfolio engineer with responsibility for research and modeling in our
systematic strategies team. Prior to joining Guardian Capital, he was a Market Risk Analyst with TD Securities. Adam
graduated with a Bachelor of Applied Science (Industrial Engineering) from the University of Toronto in 2004 and he
obtained his Masters of Mathematical Finance from the University of Toronto in 2005 and is a CFA Charterholder. He
obtained his Financial Risk Manager designation from Global Associations of Risk Professionals in 2012.
Fiona Wilson, MBA, CFA
Portfolio Manager - Systematic Strategies
Fiona Wilson joined Guardian Capital LP in 2011 as a Portfolio Manager in our systematic strategies team. Fiona began her
career as an options trader at CIBC and progressed to become Head of Currency Options Marketing, South East Asia for
Societe Generale with postings in Tokyo, Singapore and London. Her experiences included structuring classical and exotic
option trading and hedging strategies for central banks, corporate and institutional clients throughout Asia. She subsequently
took on the role of Portfolio Manager, Global Derivative Instruments with Ontario Municipal Employees Retirement System
(OMERS). Fiona graduated with a Bachelor of Arts from the University of Western Ontario and obtained her Honours
Bachelor of Commerce and MBA from the University of Windsor. Fiona is also a CFA Charterholder.
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Systematic Strategies Team
Harpreet Singh, MBA, CFA
Director of Research and Portfolio Management - Systematic Strategies
Harpreet joined Guardian Capital LP in 2012 as Director of Research and Portfolio Management with responsibility for
research and portfolio management in our systematic strategies team. Harpreet Singh is a proven senior investment
professional in portfolio management and construction, risk analysis and quantitative modeling. Previously, he was the Head
of US Equities at Manulife Asset Management in Toronto, where he successfully guided fundamental as well as quantitative
analysts and portfolio managers in a disciplined portfolio construction process established by him. Before that, Harpreet was a
Quantitative Associate at Standish, Ayer & Wood, Inc., a leading asset management firm in Boston. Harpreet earned a
B.Tech. in Chemical Engineering from The Indian Institute of Technology in New Delhi in 1989 and his MBA in Finance in
1992 from Bentley Graduate School of Business in Massachusetts. Harpreet is a CFA Charterholder.
Elgin Chau, B.Sc
Quantitative Analyst – Systematic Strategies
Elgin joined Guardian Capital LP in 2014 as a Quantitative Analyst with responsibility for assisting in research and modeling
in our systematic strategies team. Prior to joining Guardian, Elgin was a Business Intelligence consultant with Hitachi Corp.
as well as a programmer analyst with Capital one. As a Software Engineer, Elgin’s work experience has centered around
using innovative computer and financial technology to provide financial information. Elgin has a Bachelor’s Degree in
Computer Science from the University of Toronto (2008). He is pursuing his CFA designation.
Peter Michaels, M.Eng, CFA
Portfolio Engineer - Systematic Strategies
Peter joined Guardian Capital LP in 2012 as a senior Quantitative Analyst with responsibility for research and modeling in
our systematic strategies team. Peter has worked with some of the largest institutions in Canada that include Scotia
Capital, Symcor and Honeywell Aerospace. As a Software Engineer, Peter’s work experience has centered around using
innovative computer and financial technology to provide financial information to portfolio managers and financial institutions.
Peter has a Masters Degree in Computer Engineering from the University of Toronto (2008).
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