For companies sitting on huge piles of money, paying out dividends is no longer optional, says Richard Platte, manager of the Ave Maria Rising Dividend Fund Ticker:(AVEDX).
“I'd like to think we're at the beginning of an improving environment for dividends,” he said. “There is going to be less tolerance on the part of shareholders for companies [that have lots of cash] but don't pay a
dividend.”
Mr. Platte, who has managed the fund for Ave Maria Mutual Funds since it was launched in May 2005, applies a somewhat flexible and qualitative approach to building the portfolio, which comprises about 45 stocks.
For example, even though the fund tends to focus on larger companies, he's not afraid to invest in a company such as Cato Corp. Ticker:(CATO), an $850 million specialty retailer with a 3.2%
dividend yield.
“We're looking for companies with a history of increasing dividends, and we're not looking for just a penny more a year,” he said. “Most important to us is the prospect of raising dividends going forward.”
Along those lines, Mr. Platte said he pays attention to such details as reading managements' letters to shareholders to try to determine how the company views its relationship to shareholders.
“We're looking for companies that are treating shareholders as partners, because the success of this fund relies on the quality of the underlying investments,” he said.
The fund's current
dividend yield is 2.3%, which compares with 1.8% for the S&P 500.
Mr. Platte said investors recognized and appreciated the benefits of
dividend income during the financial crisis “because it gave them something to hang their hat on.”
“Income is not a dirty word anymore,” he added. “I think there is growing awareness among investors that dividends do matter, and people are increasingly saying, ‘Show me the money.'”
While the financial services industry has become one of the weaker areas for dividends, Mr. Platte is getting a 4.2% yield from Federated Investors Inc. Ticker:(FII).
Abbot Laboratories Ticker:(ABT) is also contributing to the fund, with a 3.6% yield.
Then there is Paychex Inc. Ticker:(PAYX), a payroll processing company that has been struggling in the slower economy. Nevertheless, Paychex'
dividend yield is hovering around 4%.
The fund, which has a five-star rating from Morningstar Inc., is up 11% from the start of the year, which compares with a 6% gain by the S&P 500 and a 5.5% average gain by Morningstar's large-blend-fund category.
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.
