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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 and dividend parameters
  • 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 toward the lower end of historical valuations relative to peers, industry and the markets

3 Fundamentals Analysis

  • Apply traditional fundamental analysis, evaluating financial statements and looking for improving fundamental momentum 
  • 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 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 that pay dividends.

Relative Valuation — Securities are subjected to a quantitative review, including analysis of price-to-book, price-to-earnings, price-to-cash flow and dividend yield. Those trading in the lower end relative to their respective benchmarks and to their sectors are identified.

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

Security Selection

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, 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 lower end of their historical ranges. Our analysts, in addition to performing fundamental company and industry analysis, are tasked with identifying any fundamental 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, valuation targets are achieved, 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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