(Jim Boothe of Santa Barbara Asset Management.)
2012 U.S. Large-Cap Equity SMA Manager of the Year, Co-Winner:
Santa Barbara Asset Management
Dividend Growth Portfolio
This is an expanded profile of one of Investment Advisor-Prima Capital's 8th annual Separately Managed Account Managers of the Year. View the complete article with all the winners here. Read about the process of choosing this year's winners here.
“We believe dividend growth equals capital appreciation,” says Jim Boothe. “Therefore we manage a dividend portfolio of 40 companies that generates above-average yield and is balanced among sectors.”
Boothe, portfolio manager with Nuveen-owned Santa Barbara Asset Management, is a “player/coach,” meaning he takes on analyst duties at the boutique firm with four others.
“We look for clean balance sheets, a competitive advantage, very strong cash flow and a commitment to dividends,” he adds.
Santa Barbara Asset Management was founded in 1987, and on Aug. 1, 2005, the firm announced its acquisition by Nuveen Investments. Santa Barbara continues to operate independently with no changes to the investment process or methodology.
According to Prima, the firm’s dividend growth strategy's philosophy is to seek total return from both dividend income and capital growth with lower-than-market volatility. Santa Barbara does this by investing in dividend-paying companies using three elements when constructing the portfolio: aggregate dividend yield that is higher than the S&P 500; volatility that is lower than the S&P 500; and identifying companies that grow their dividends.
Prima notes the dividend growth investment process begins by identifying a universe of approximately 5,000 companies. This universe is reduced to approximately 1,000 companies that are currently paying dividends on their equity securities. The investment universe includes both domestic and non-U.S. companies and is generally restricted to companies with a current market capitalization above $3 billion.
Santa Barbara then removes companies that do not pay tax-advantaged dividends, including REITs and limited partnerships, resulting in approximately 800 companies. The firm then applies quantitative screens to identify high-dividend-paying companies by sector and industry, resulting in approximately 250 companies. Additional screens are then applied to identify companies with high dividend growth rates.
From the remaining pool of approximately 100 companies, Santa Barbara applies bottom-up fundamental analysis to evaluate the prospects for sustainable dividend growth and capital appreciation. When selecting companies for the portfolio, the firm evaluates certain factors, including a sound business model, strong overall financial position, earnings growth, return on equity, quality of management, potential for dividend growth, market valuation and the commitment to return cash to shareholders. Using this information, Santa Barbara constructs a diversified portfolio, which generally consists of 30 to 50 holdings with broad sector and industrial representation.
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