An Economic Perspective on Dividends

Transcription

1 2016 An Economic Perspective on Dividends

2 Table of Contents Corporate Outlook Market Environment Payout Ratio... 5 Long-term View Global View Active Management Risk Considerations & Endnotes This material must be presented in its entirety and the disclosures presented may apply to one or more charts. Data shown in this report reflects historical performance which is no guarantee of future results. Dividend yield is one component of performance and should not be the only consideration for investment. Dividends are not guaranteed and will fluctuate. Investing entails risk, including the possible loss of principal. Any performance or information shown on the charts throughout this presentation are for illustrative purposes only and not intended to represent any Santa Barbara Asset Management portfolio s investment strategy or predict future investment performance. Other methods may produce different results and the results for individual portfolios and for different time periods will vary depending on market conditions and the composition of the portfolio. Information contained herein has been taken from third party sources, which we believe to be reliable, but not guaranteed as to accuracy or completeness. All indices shown are unmanaged and unavailable for direct investment. Index returns do not reflect investment advisory and other fees or expenses that would reduce performance in an actual client account. For charts that illustrate S&P 500 and MSCI EAFE stocks grouped by dividend policy, the stock s dividend policy is determined on a rolling 12-month basis. For example, a stock is classified as dividend-paying if it paid a cash dividend at any time during the previous 12 months. A stock is reclassified only if its dividend policies change. NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

3 Corporate Cash Levels and Dividend Payouts (September 30, 2005 September 30, 2015) Corporate Cash Levels ($Millions) Dividends Paid ($Millions) $160,000 $100 Corporate Cash Levels ($Millions) $130,000 $100,000 $70,000 $80 $60 Dividends Paid ($Millions) $40, $40 U.S. nonfarm, nonfinancial companies are currently sitting on a record pile of cash and liquid assets, but they are increasingly putting that cash back into the hands of investors in the form of dividends. Data sources: FactSet and S&P Dow Jones Indices from 9/30/05 9/30/15. Past performance is no guarantee of future results. The chart illustrated the quarterly total liquid assets at market value, ending September 30, Most recent quarter-end data available based on individual company earnings releases. Corporate cash levels and dividends paid are represented by nonfinancial companies in the S&P 500 Index. Special dividends were issued by Microsoft in December 2004 and Time Warner in March It is not possible to invest in an index. 1 Corporate Outlook Santa Barbara Asset Management

4 Dividend Growers vs. Cutters (January 31, 1972 December 31, 2015) Growers & Initiators Cutters or Eliminators Recession 500 Number of S&P 500 Index Companies As indicated by the chart above, historically after a recession, the number of S&P 500 Index companies that grew or initiated their dividend generally increased and the number of companies that cut or eliminated their dividend decreased. Data source: Ned Davis Research, Inc. from 1/31/72 12/31/15. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. The chart illustrates the number of dividend growers/initiators and dividend cutters/eliminators over rolling 12 month periods from Dividend growers and initiators include companies that raised their existing dividend or initiated a new dividend during the preceding 12 months. Dividend cutters or eliminators include companies that lowered their existing dividend or stopped paying regular dividends during the preceding 12 months. The periods shown do not represent the full history of the S&P 500 Index; it is the history maintained by the source. Shaded areas represent recession periods as identified by the National Bureau of Economic Research. 2 Corporate Outlook Santa Barbara Asset Management

5 Dividends and Market Volatility (January 1, 2006 December 31, 2015) VIX Index Closing Value CBOE Volatility Index Dividend Growers vs. Non-Payers Performance During Months when VIX Increased Average Out/Under Performance of VIX Monthly Increase Dividend Growers >40% 1.7% 20-40% 0.3% 10-20% 1.1% <10% 0.0% Average (Across All Months 0.7% When VIX Increased) Companies with persistent dividend growth have provided excess returns during periods of market volatility. Data sources: FactSet and Ned Davis Research, Inc. from 1/1/06 12/31/15. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. Past performance is no guarantee of future results. These charts illustrate the average historical performance of S&P 500 stocks, grouped as shown according to their dividend policies. Periods greater than one year have been annualized. The returns do not reflect the deduction of any fees, expenses or taxes. Returns for stocks that paid dividends assume reinvestment of all income. Performance returns may have been negative during this time period. Investors cannot invest in an index. The periods shown do not represent the full history of the S&P 500 Index; it is the history maintained by the source. 3 Market Environment Santa Barbara Asset Management

6 Dividend Performance After the Federal Reserve Increased Rates (Subset of S&P 500 Index; All Rate Hikes Since 1972) 140 Dividend Growers Payers with No Change in Dividends Non-Dividend Payers Dividend Cutters 130 Index Returns Elapsed Months Dividend payers, particularly those that have grown or initiated a dividend, have outperformed after the Fed increased rates. Data source: Ned Davis Research. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. Past performance is no guarantee of future results. Data shown is based on the average performance after all rate hikes since 1972 which occurred on the following dates: 1/15/73, 8/31/80, 4/9/84, 9/4/87, 2/4/94, 3/25/97, 6/30/99, 6/30/04. The returns do not reflect the deduction of any fees, expenses or taxes. Returns for stocks that paid dividends assume reinvestment of all income. Investors cannot invest in an index. 4 Market Environment Santa Barbara Asset Management

7 Dividend Payout Ratio (December 31, 1995 December 31, 2015) Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Lowest Payout Ratio Highest Payout Ratio 100 Returns Relative to the S&P 500 Index Over the past 20 years, stocks with the highest payout ratio (Quintile 5) were not the best performers over time stocks with medium and medium-high payout ratios (Quintiles 3 and 4) have outperformed. Firms that pay higher dividends but use a smaller percentage of earnings to do so may have the capacity to raise their dividends over time. Data source: FactSet Fundamentals via FactSet Alpha Testing from 12/31/95 12/31/15. Past performance is no guarantee of future results. The chart illustrates the dividend payout ratio of S&P 500 companies grouped by Quintiles with Quintile 1 representing the lowest payout ratio and Quintile 5 representing the highest payout ratio. The performance shown is for illustrative purposes only. The chart illustrates the historical performance of S&P 500 dividend-paying stocks relative to the Index. The returns do not reflect the deduction of any fees, expenses or taxes, and assume reinvestment of all income. Investors cannot invest in an index. 5 Payout Ratio Santa Barbara Asset Management

8 Dividend Income as a Percentage of Total Return (January 1, 1930 December 31, 2015) Dividend Income Return Total Return S&P 500 Index Annualized Total Return 20% 15% 10% 5% 0% -5% 43% of total return s** 1940s 1950s 1960s 1970s 1980s 1990s 2000s** 2010s* 1/1/ /31/2015 1/1/ /31/1939 1/1/ /31/1949 1/1/ /31/1959 N/A 67% of total return 30% of total return 43% of total return 73% of total return 28% of total return 15% of total return N/A 17% of total return 1/1/ /31/1969 1/1/ /31/1979 1/1/ /31/1989 1/1/ /31/1999 1/1/ /31/2009 1/1/ /31/2015 Over the last 85 years, 43% of the average annual total return of the S&P 500 was derived from the payment and reinvestment of dividend income, while capital appreciation/depreciation has contributed the rest. * Represents a partial period and not a full decade. **The analysis provided by Ned Davis indicates that the data is not applicable because the Dividend Income Return data for the 1930s and 2000s is disproportionately high versus the other decades due to the low or negative Total Returns during these periods. The information provided in this analysis may not represent the full value of reinvested dividends. Data source: Ned Davis Research, Inc. from 1/1/30 12/31/15. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. Past performance is no guarantee of future results. Periods greater than one year are annualized. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic stock market. Return performance is based on equal-weighted geometric average, computed monthly. Dividend income return is based on the return percentage of all dividend-paying companies in the S&P 500. The returns do not reflect the deduction of any fees, expenses or taxes, and assume reinvestment of all income. Investors cannot invest in an index. 6 Long-Term View Santa Barbara Asset Management

9 Dividends: Risk vs. Return (January 31, 1972 December 31, 2015) Average Annualized Total Return Lower Return Higher Return 12% 9% Dividend Growers & Initiators Dividend Payers w/ No Change 6% 3% 0% Non-Dividend Paying Stocks Dividend Cutters or Eliminators -3% 10% 15% 20% 25% 30% Lower Risk Annualized Standard Deviation Higher Risk Historically, companies in the S&P 500 Index that grew or initiated dividends have produced higher returns with lower risk than companies that did not increase their dividend, reduced their dividend, or did not pay a dividend. Data source: Ned Davis Research, Inc from 1/31/72 12/31/15. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. Past performance is no guarantee of future results. This chart illustrates the average annualized historical performance of S&P 500 stocks, grouped as shown according to their dividend policies. The performance of each group is based on the equalweighted geometric average return of dividend-paying and non-dividend paying historical S&P 500 stocks, rebalanced monthly. The performance shown represents the risk-return characteristics of each of the categories. The returns do not reflect the deduction of any fees, expenses or taxes. Returns for stocks that paid dividends assume reinvestment of all income. Performance returns may have been negative during this time period. Investors cannot invest in an index. The periods shown do not represent the full history of the S&P 500 Index; it is the history maintained by the source. 7 Long-Term View Santa Barbara Asset Management

10 Dividends: Historical Rolling Returns 15-Year Rolling Returns (January 31, 1987 December 31, 2015) 20% Dividend Growers & Initiators Dividend Payers w/ No Change in Dividends Dividend Cutters or Eliminators Non Dividend-Paying Stocks 15% Return by Dividend Policy 10% 5% 0% -5% -10% -15% Since 1987, Dividend Growers & Initiators have outperformed their dividend counterparts 100% of the time. Data source: Ned Davis Research, Inc. from 1/31/87 12/31/15. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. Past performance is no guarantee of future results. Data represents a 15-year rolling performance of S&P 500 stocks at the end of each month during the time frame from January 31, 1972 through December 31, 2015, grouped as shown according to their dividend policies. The returns do not reflect the deduction of any fees, expenses or taxes. Returns for stocks that paid dividends assume reinvestment of all income. Performance returns may have been negative during this time period. Investors cannot invest in an index. The periods shown do not represent the full history of the S&P 500 Index; it is the history maintained by the source. 8 Long-Term View Santa Barbara Asset Management

11 Dividends: Risk vs. Return in International Markets (MSCI EAFE Index) (August 31, 1994 December 31, 2015) Average Annualized Return Lower Return Higher Return 10% Dividend Growers & Initiators 5% 0% Dividend Payers w/ No Change -5% Non-Dividend Paying Stocks -10% Dividend Cutters or Eliminators 10% 15% 20% 25% 30% Lower Risk Annualized Standard Deviation Higher Risk Historically, companies in the MSCI EAFE Index that grew or initiated dividends have produced higher returns with lower risk than companies that did not increase their dividend, reduced their dividend, or did not pay a dividend. Data source: Ned Davis Research from 8/31/94 12/31/15. Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved. Past performance is no guarantee of future results. The chart illustrates the average annualized historical performance of the MSCI EAFE Index stocks, grouped as shown according to their dividend policies, using Worldscope data based on the financial statements of reportable companies. (No. Dividend Growers: 395; No. of Dividend No-Charge: 130; No. of Dividend Non-Payers: 10; No. of Dividend Cutters: 56). The performance of each group is based on the equal-weighted geometric average of dividend-paying and non-dividend paying historical MSCI EAFE Index stocks, rebalanced monthly. The performance shown represents the risk-return characteristics of each of the categories. The returns do not reflect the deduction of any fees, expenses or taxes. Returns for stocks that paid dividends assume reinvestment of all income. Performance returns may have been negative during this time period. It is not possible to directly invest in an unmanaged index. The periods shown do not represent the full history of the MSIC EAFE Index; it is the history maintained by the data source. 9 Global View Santa Barbara Asset Management

12 Dividend Growth is Important in Most Markets (January 31, 1970 December 31, 2015) Dividend Yield Dividend Growth Multiple Expansion Total Annualized Returns 12% 9% % 3% 0% -3% World U.S. U.K. Japan Canada France Germany Australia Looking at the returns subcomponents (dividend yield, dividend growth and multiple expansion), dividends have contributed to both current and total return. Historically dividend growth has been the largest component of total annualized return. Data source: Société Générale Quantitative Research from 1/31/70 12/31/15. Past performance is no guarantee of future results. Used with permission. Data provided by the source for the World returns included Sweden since 1/1/93 and Asia ex-japan since 7/1/87. These countries have not been included individually in the chart above because the data did not cover the 1/31/70 12/31/15 time period; the data for Sweden began in 1993 and Asia ex-japan Q Periods greater than one year are annualized. For each individual country represented, the representative MSCI country index is used to calculate the total annualized return components: dividend yield, dividend growth and multiple expansion. Local currency is used for each representative MSCI country index. To construct an MSCI country index, every listed securities in the market is identified. Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard (GICS), and screened by size, liquidity and minimum free float. Index performance shown is for illustrative purposes only and does not predict or depict the performance of any Santa Barbara portfolio investment strategy. Index returns include reinvestment of income and do not reflect investment advisory and other fees that would reduce performance in an actual client account. All indices are unmanaged and unavailable for direct investment. 10 Global View Santa Barbara Asset Management

13 Dividend Yields of International vs. U.S. Stocks (December 31, 2005 December 31, 2015) 6% MSCI EAFE Index S&P 500 Index 5% Dividend Yield (%) 4% 3% 2% 1% Dividend yields of international stocks have on average been more than 50% higher than dividend yields of U.S. stocks since Data source: FactSet from 12/31/05 12/31/15. Past performance is no guarantee of future results. Dividend Yield (Annual Dividend Rate) of the MSCI EAFE Index vs. S&P 500 Index. 11 Global View Santa Barbara Asset Management

14 Global Stocks and Dividend Yield (as of December 31, 2015) 20-Year Range 7% 20-Year Average Current (12/31/15) 6% Dividend Yield (%) 5% 4% 3% 2% 1% 0% U.S. U.K. Japan Canada France Germany Australia Dividend yields in all major developed markets are above their long-term averages with yields of some countries being 15% higher than their 20-year average. Data sources: Standard & Poors and FactSet as of 12/31/15. Past performance is no guarantee of future results. For illustrative purposes only. Other methods and market conditions may result in significantly different outcomes. Dividends are not guaranteed and will fluctuate. Dividend yield is one component of performance and should not be the only consideration for investment. For the U.S., the S&P 500 Index is used to calculate the range, average and current dividend yield, while for all other countries represented, the representative MSCI country index is used. To construct an MSCI country index, every listed securities in the market is identified. Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard (GICS ), and screened by size, liquidity and minimum free float. You cannot invest directly in an index. 12 Global View Santa Barbara Asset Management

15 Dividend Investing and Active Management Dividend-paying stocks offer periodic cash flow, which may help mitigate the impact of capital losses. But not all dividend paying companies will perform equally over the long-term. Santa Barbara believes that companies with superior business models have the potential for sustainable dividend policies. An actively managed portfolio that holds the best of the Dividend Growers & Initiators has the potential for higher long-term total return with lower standard deviation. Santa Barbara Asset Management manages U.S., global and international based mutual funds and managed accounts utilizing a dividend growth strategy that seeks current income and capital appreciation by investing primarily in dividendpaying stocks. * Santa Barbara believes that investing in companies with sustainable dividend policies and strong fundamentals for capital appreciation are both important factors to achieving attractive returns. We seek to invest in companies with defendable competitive advantages, strong management, and low dependence on capital markets. The Dividend Growth Strategy: Targets a dividend yield higher than the index Targets dividend growth greater than the index Is constructed with a beta lower than the index as a means to mitigate systematic risk and minimize volatility Is diversified across all sectors * Managed accounts may differ from mutual funds. Client holdings, sector weights and portfolio characteristics may vary depending upon the size of the account, investment objectives and restrictions, inception date, related fees and costs. This strategy may hold American Depositary Receipts (ADRs). ADRs are the receipts for the shares of a foreign-based company traded on U.S. exchanges. ADRs do not eliminate the currency and economic risks for the underlying shares in another country. In addition, the strategy invests at least 80% of its net assets in dividend paying common and preferred stocks under normal market conditions. Managed accounts do not hold preferred stocks. All investments carry a certain degree of risk including the loss of principal and there is no assurance that an investment will provide positive performance over any period of time. Dividends are not guaranteed and will fluctuate. 13 Active Management Santa Barbara Asset Management

16 Risks and Other Important Considerations A WORD ON RISK Investing involves risk; principal loss is possible. Dividend-paying stocks are subject to market risk, concentration or sector risk, preferred security risk, and equity securities risk. Small or mid-cap stocks are subject to greater volatility. Foreign investments involve additional risks including currency fluctuations, political and economic instability, and lack of liquidity. These risks are magnified in emerging markets. This presentation contains the most recent data available at the time of printing. The statements contained herein are based upon applicable data and the opinions of Santa Barbara Asset Management, LLC and are subject to change at any time. Nuveen Investments does not verify nor guarantee the accuracy or completeness of the information presented. This information should not be relied upon as investment advice or recommendations, and is not intended to predict or depict performance of any investment. This presentation should not be regarded by recipients as a substitute for the exercise of their own judgment. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different outcomes. Neither Nuveen nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this presentation. Since no one manager is suitable for all investors, it is important to review investment objectives, risk tolerance, tax liability and liquidity needs before choosing a suitable investment style or manager. Santa Barbara Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc. 14 Risk Considerations & Endnotes Santa Barbara Asset Management

17 Endnotes Each stock s dividend policy is determined on a rolling 12-month basis. For example, a stock is classified as dividend-paying if it paid a cash dividend at any time during the previous 12 months. Dividend growers and initiators include stocks that raised their existing dividend or initiated a new dividend during the preceding 12 months. Dividend cutters or eliminators include stocks that lowered their existing dividend or stopped paying regular dividends during the preceding 12 months. A stock is reclassified only if its dividend policies change. Dividend yield is one component of performance and should not be the only consideration for investment. Dividends are not guaranteed and will fluctuate. The returns shown do not reflect the deduction of any fees, expenses or taxes. Returns for stocks that paid dividends assume reinvestment of all income. Other methods and benchmarks may produce different results, and the results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. INDEX DEFINITIONS The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic stock market. The MSCI EAFE Index is a free float-adjusted market capitalization weighted index designed to measure developed market equity performance, excluding the U.S. and Canada. GLOSSARY Beta: A measure of the volatility of a portfolio relative to the overall market. Dividend yield: For a company s stock, the ratio of the dividends paid out by the company each year per share to the share s current market price. Multiple expansion: An increase in the price-earnings ratio, or multiple, of a stock or group of stocks. Nominal returns: The rate of return on an investment without adjustment for inflation. Payout ratio: Measures the percentage of a company s earnings paid out to shareholders in the form of dividends. Standard deviation: A measure of the degree to which returns varied from the average return over a certain period. It is a common measure of volatility and risk. GBR-BDGFLIP-1215D INV-Y-01/17 15 Risk Considerations & Endnotes Santa Barbara Asset Management