Wealth management firm The Bahnsen Group (TBG) today announced the launch of the TBG Dividend Focus ETF. The diversified actively managed ETF invests in publicly traded companies that have a long history of growing their dividends.
While dividends are an important ingredient for investment performance, the growth of the dividend is even more important. Companies that consistently grow their dividends provide investors with extra income and the potential for supercharged compounding interest. A company’s ability to grow its dividend consistently over time is also a strong indicator of its financial health.
See more: How to Find the Right Dividend Growth ETF
TBG’s founder and CIO David Bahnsen said it isn’t “enough for a company to simply pay a dividend to shareholders. That dividend should be growing each and every year, and far too many investors only pay attention to the dividend and not its growth rate.”
“Dividend growth speaks volumes about the financial well-being and sustainability of a company,” he added, noting that TBG wants “nothing to do with companies whose dividend is in jeopardy.”
Bahnsen is also the firm’s managing partner and TBG’s portfolio manager.
Seeking the S&P 500’s Highest Dividend Growers
Since TBG is actively managed, it does not track any index. It generally invests in 25 to 35 small-, mid- and large-cap companies that are primarily U.S.-based. The companies will generally maintain a dividend yield greater than the S&P 500’s average dividend yield. Preference is given to companies that have increased their dividends by more than 5% annually over a five- to seven-year market cycle.
Companies are selected using bottom-up fundamental analysis. This includes criteria such as balance sheet strength, earnings growth, leverage ratios, free cash flows, and payout ratios, and the rate at which a company distributes earnings to shareholders. The company’s management team and its track record of strategically allocating company capital is also considered.
Companies in TBG are sold if their dividends decline notably, if the investment thesis for the company crumbles, or if the company’s management fails to maintain or grow its dividend.
“Selectivity is critical in dividend growth investing, as not all dividends are created equal,” Bahnsen said.
The Bahnsen Group will serve as portfolio manager for the fund with Madison Avenue Financial Solutions LLC as subadvisor. Empowered Funds dba EA Advisors is the fund advisor.
Wealth Managers Launching ETFs
There’s been demand for high-quality, dividend-focused equity portfolios. But VettaFi’s Financial Futurist Dave Nadig noted that the launch of TBG is part of another growing trend.
“What is most interesting is this continued trend of multibillion-dollar wealth managers and family offices launching individual ETFs," he said. Nadig cited the Virtus Cumberland Municipal Bond ETF (CUMB ) and the ETC 6 Meridian Quality Growth ETF (SXQG ) as examples.
“The cost of entry has become quite reasonable for a small shop, even if ETFs aren’t their primary business. It creates opportunities for nonclients to get access to a boutique family office strategy,” Nadig explained. “As always with a niche strategy, however, investors need to dig under the hood.”
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