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We apply a disciplined and methodical bottom-up stock selection process based on fundamental research and analysis on a company-by-company basis to identify catalysts that we believe may indicate upside potential. We select stocks with the most attractive risk/reward prospects and apply an economic overlay to confirm fundamental momentum.

1 Screening

  • Screen companies on market capitalization parameters and dividend screens
  • Narrow universe to exchange traded, dividend paying stocks

2 Valuations

  • Examine valuations relative to historical value, peers, and the market. Apply specific valuation metrics including price-to-book and price-to-sales
  • Narrow universe to stocks trading in the lower third of its historical valuation relative to peers, industry and the markets

3 Fundamentals Analysis

  • Apply traditional fundamental analysis, evaluating financial statements and looking for positive catalysts 
  • Narrow universe to stocks with well-defined dividend policies that display characteristics of financial strength and positive catalyst

4 Construct and Monitor Portfolio

  • Construct a portfolio of 40 to 100 dividend paying stocks that have attractive valuations, and long term positive catalysts for price appreciation

Screening Process

While our process primarily employs fundamental analysis during the stock selection process, quantitative methods also are used to screen the initial universe:

Dividend Component — The universe is screened for stocks with specific dividend yields and market capitalizations.

Relative Valuation — These securities are subjected to a quantitative review based on price to book, price to earnings, price to cash flow and dividend yield. Only those securities trading in the lower third relative to their respective benchmarks and to their sectors are selected.

Absolute Valuation — Price to book, price to earnings, and price to cash flow analysis is also used to identify those securities trading in the lower third of their historical valuation.

Purchase Process

Our dedicated analysts develop "buy" and "sell" recommendations based on the initial quantitative screening and in-depth fundamental analysis. Three key factors that the analysts consider when recommending a stock are yield, relative valuation and the presence of a catalyst for that stock.

Dividend payment is a required element for addition to the portfolio; there are no exceptions to this policy. An examination of absolute and relative valuations determines which candidates are in the bottom third of their historical ranges. Our analysts, in addition to performing fundamental company and industry analysis, are tasked with identifying any viable catalysts that may cause appreciation, such as changes in competitive positioning, product lines and management restructuring as well as growth and acquisition potential. None of these key decision criteria is more important than another; they are all required elements in our investment process.

After detailed analysis, the research analysts make a recommendation. This initiates a discussion between the analyst and the portfolio manager. The portfolio manager incorporates the analyst's recommendation and reasoning with his own experience, judgment, and portfolio construction requirements and the outcome is his investment decision.

If a company stops paying a dividend or its catalyst isn't leading to meaningful change, the team may replace the stock with one that meets their stringent requirements.

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