Quick Take: Donald Taylor doesn’t care much about a company’s dividend yield, although all else being equal, he’d obviously like it to be high, he says.
Taylor, the lead manager of the Franklin Managed Tr:Rising Dividends Fund/A (FRDPX), is more concerned with finding companies that increase their dividends a lot, and often. Once a company passes that test, he wants to buy its stock when it’s relatively inexpensive.
Because of the fund’s focus on dividend-paying companies, it tends to exclude those “with very aggressive growth aspirations,” and businesses whose fortunes are tied to the strength of the economy, Taylor says.
The Franklin Rising Dividend fund was up 11.5% through April this year, while the average mid-cap value fund rose 4.3%. The fund returned 13.1% last year, compared to a gain of 6.9% for its peers.
The Full Interview:
Dividends lack the glamour of a soaring stock price, and they’re taxable. So why would an investor — or a money manager — care about them?
Because, as Donald Taylor explains, regular, large dividend hikes can be an indication of a successful business.
“If you had consistent and substantial dividend increases, that says something about the kind of growth that company has been able to generate over time, which we find attractive,” says Taylor, who leads the team that runs the Franklin Rising Dividend Fund.
The managers screen for profitable companies that have increased their dividends in eight of the last ten years, and at least doubled them over the last ten. Payouts generally must be less than 65% of current earnings.
Although some portfolio managers prefer stock buybacks over cash payouts to shareholders, Taylor argues that companies that repurchase shares are often forced to buy them even when prices are high.