Advisors continuing the search to maximize yield in clients’ portfolios is a key theme for 2023.
Layering the , a deep value strategy, and the )+, a quality strategy, in a portfolio can maximize yield.
Investors seeking to capture yield with dividend growth strategies to offset the lost purchasing power from elevated inflation can sometimes find themselves in a classic value trap, or with companies that are financing dividends through rolling debt,
A blended portfolio of SDOG and OUSA may provide an optimal large-cap mix of high yield, deep-value stocks with high-quality, dividend-growing stocks that can reduce the portfolio volatility that tends to accompany high-dividend strategies, according to SS&C ALPS Advisors.
Allocating to both strategies can enhance relative returns in the value sleeve with an elevated yield of 3.28%, a more attractive relative valuation than the Russell 1000 Value Index, and lower historical portfolio volatility as of September 30.
A blend of SDOG and OUSA has outperformed the Russell 1000 Value Index (RLV) by more than 100 basis points over all time periods since the funds’ common inception in 2017, while also maintaining lower portfolio volatility, as of September 30.
SDOG’s yield-driven methodology equally weights the top five highest dividend-payers in each sector (excluding real estate). The fund overweights pro-cyclical sectors including energy, materials, and industrials, providing a tailwind during inflationary periods.
OUSA offers exposure to quality U.S. equities by selecting companies that have sustainable dividends, a high return on assets, and low levels of debt.
SDOG’s five-year average annual dividend growth is 7.04% compared to 4.79% for the S&P 500 (tracked by the ), while OUSA’s five-year average ROA is 10.97% vs. the S&P 500 at 9.32%, as of September 30., according to ALPS.
According to Bloomberg, companies with higher five-year average annual dividend growth in the S&P 500 Index (SPX) have typically outperformed over a five-year period, as have companies with a higher five-year average ROA.