Heartland Advisors

Dividend Yield

Transcript

Dividends are typically associated with income investing, but at Heartland, we believe they serve another important purpose: increased financial discipline on companies that issue them. Generally speaking, management teams know that once initiated, dividends cannot be canceled or cut in the future without significant repercussions. Dividends also motivate management from incurring too much debt, as the interest expense tied to that borrowing could put the dividend at risk during hard times.

This doesn’t mean we look for high dividend payers. We don’t. All else being equal, we prefer companies with modest dividend payout ratios in relation to their financial resources — in addition to attractive valuations based on earnings, cash flows, and book value. 
Why? We want companies with ample room to grow their dividends over time and with the strength to keep their businesses safe over time. Modest dividend payouts in relationship to earnings and cash flows should provide that flexibility. We much prefer this narrative over one of high yields, high dividend payout ratios, and high amounts of debt on the balance sheet, which can suggest less room to raise dividends in the future.

It’s important to note that dividend yield is not one of our key valuation parameters. However, dividend yield and the strength to grow those dividends consistently over time speak to a firm’s financial soundness, which is one of our 10 Principles of Value Investing™. In this regard, dividends aren’t an end goal, but a means by which we can gain confidence in the financial soundness and management capabilities of any company we are assessing. Through this process we use the 10 Principles of Value Investing™ to guide us to companies that best match our value process and that we believe will result in strong long-term results for our investors.

 

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Past performance does not guarantee future results.

Investing involves risk, including the potential loss of principal.

There is no guarantee that a particular investment strategy will be successful.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

The statements and opinions expressed in the articles or appearances are those of the presenter. Any discussion of investments and investment strategies represents the presenters' views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true.

Economic predictions are based on estimates and are subject to change.

Heartland Advisors’ 10 Principles of Value Investing™ consist of the following criteria for selecting securities: (1) catalyst for recognition; (2) low price in relation to earnings; (3) low price in relation to cash flow; (4) low price in relation to book value; (5) financial soundness; (6) positive earnings dynamics; (7) sound business strategy; (8) capable management and insider ownership; (9) value of company; and (10) positive technical analysis.

Dividends are not guaranteed and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

The future performance of any specific investment or strategy (including the investments discussed above) should not be assumed to be profitable or equal to past results. The performance of the holdings discussed above may have been the result of unique market circumstances that are no longer relevant. The holdings identified above do not represent all of the securities purchased, sold or recommended for the Advisor’s clients.

In certain cases, dividends and earnings are reinvested.

Heartland’s investing glossary provides definitions for several terms used on this page.

ALPS Distributors, Inc., is not affiliated with Heartland Advisors.

CFA® is a registered trademark owned by the CFA Institute.

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