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Columbia's Davis on Finding Quality Dividend Stocks (Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Charlie Pellot and that's a Bloomberg business flash. Charlie Pella,
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  Speaker 1: of Satisfaction Guaranteed New York City realty investments see them
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  Speaker 1: at n r I A dot net. Gold up twenty
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  Speaker 1: eight percent this year. That means a lot for some
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  Speaker 1: of the biggest gold e t s. For this now
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  Speaker 1: we turn to our own Catherine Cowdry. Gold is climbed
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  Speaker 1: twenty eight percent this year as investors turned to haven's
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  Speaker 1: this year. Bloomberg Intelligence analyst Eric beltounis and what this
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  Speaker 1: means for the biggest gold ETF, the Spider Gold Shares
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  Speaker 1: or g l D. G l D has taken in
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  Speaker 1: thirteen point five billion dollars. That is by far the
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  Speaker 1: most taken in any year, and we're only halfway done.
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  Speaker 1: Bealtuna says, there's broad based interest in ETFs in this category.
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  Speaker 1: You look down the precious metal ttfs, you see fifteen
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  Speaker 1: to g l D, but still it means somewhere out
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  Speaker 1: there people are buying different types of precious metal ttfs.
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  Speaker 1: That is a sign that the depth of the concern
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  Speaker 1: in the market right now is great because it just
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  Speaker 1: means that people are using a different variety of flavors
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  Speaker 1: to start to work gold into their portfolio. Tuna says
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  Speaker 1: investors are turning to gold as a crisis head and
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  Speaker 1: to diversify their portfolios in a time of volatility. That's
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  Speaker 1: your Bloomberg ETF report. I'm Catherine Cowderie. This is taking
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  Speaker 1: Stock with Kathleen Hayes and Pim Box on Bloomberg Radio,
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  Speaker 1: searching for income in a yield starved world. Scott Davis
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  Speaker 1: his senior portfolio manager and head of income Strategies at
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  Speaker 1: Columbia thread Needle Investments and he joins us now Boston.
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  Speaker 1: Scott Davis, thank you very much for being with us.
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  Speaker 1: What if you could tell us some of your strategies
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  Speaker 1: to run the Columbia Dividend income funded ticker symbol they're
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  Speaker 1: a g s F t X. Yeah, thanks for having
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  Speaker 1: me on UM. You know, I think one of the
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  Speaker 1: things that does make us unique is dividends are never
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  Speaker 1: our first cut on a stock. Actually, um, we actually
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  Speaker 1: look at what we think sources the dividend, and for us,
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  Speaker 1: that's sustainable pre cash flow from operations. And I think
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  Speaker 1: that's where oftentimes people get confused. A lot of people
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  Speaker 1: will talk about diving in the yield, and we we
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  Speaker 1: prefer to talk about actually income generation and looking for
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  Speaker 1: companies that can you know, generate decent income but from
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  Speaker 1: their cash flow from operations. That's how they fund it.
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  Speaker 1: That's what makes it sustainable over time and and can
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  Speaker 1: grow that over time. That that that's key to what
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  Speaker 1: we do. Well. That sounds very sensible to me. What
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  Speaker 1: what would you say right now is distinguishing companies that
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  Speaker 1: you know, meet your hurdle, that past that bar, and
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  Speaker 1: those that don't. Again, what we do is, by first
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  Speaker 1: of all, we do two things. You know, I think
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  Speaker 1: a lot of people are concerned that some of the
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  Speaker 1: dividend stocks have gotten overvalued, and I think there are
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  Speaker 1: areas where where there is real overvaluation. UM. But what
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  Speaker 1: we are trying to do is we actually make We
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  Speaker 1: don't think dividend yield is a value metric. We actually
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  Speaker 1: use cash flow yield. So most of our companies still
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  Speaker 1: are you know, our average pre cash flow and our
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  Speaker 1: companies is about five percent. Market is down under three
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  Speaker 1: percent currently. A great example of the name would be
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  Speaker 1: something like a Johnson and Johnson UM. You know this.
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  Speaker 1: You know, this company has been in business since the
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  Speaker 1: car Field administration, last of the triple A balance sheets. UH.
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  Speaker 1: You know, trades in a multi multiple market multiple but
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  Speaker 1: has great pre cash flow yield and growing pre cash
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  Speaker 1: flow UH and has basically has a dividend yield above
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  Speaker 1: that of a tenure treasury and compounds it at about
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  Speaker 1: seven percent per and their dividend. And I was gonna
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  Speaker 1: say it's got that. The year to date, the Columbia
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  Speaker 1: Dividend Income Fund is up about eight a little bit
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  Speaker 1: more than eight and a half per cent, and that's
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  Speaker 1: almost twice as good as the SMP five. Yeah, I think,
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  Speaker 1: you know, some of the things that really have helped
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  Speaker 1: us this year at the focus on quality yield is
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  Speaker 1: obviously helped UM. But I think you know, if you
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  Speaker 1: look at what's gone on for six months in the
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  Speaker 1: market and for the year, it's it's sort of a
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  Speaker 1: tale of two cities. I mean, one where and one
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  Speaker 1: that some people are sort of playing momentum like recovery
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  Speaker 1: and energy stocks that we've seen, But a lot of
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  Speaker 1: people really do seem to be seeking out this stability,
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  Speaker 1: and you know, I think that our focus on quality
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  Speaker 1: has helped us there. So what is the challenge going ahead? Uh?
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  Speaker 1: Is it? Uh? The economy growing, getting more strong, and
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  Speaker 1: the market broadly rising more. So people say, oh, well,
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  Speaker 1: you know why so I put my money in a
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  Speaker 1: dividend fund when I could go for something that's got
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  Speaker 1: more growth or a momentum. I think, yeah, that is
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  Speaker 1: a risk um. I will see that with certain dividend stocks,
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  Speaker 1: but a lot of the companies, well, we actually owned
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  Speaker 1: stocks across the buckets of yield. Uh you know if
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  Speaker 1: it so over eight percent of the names in SMP
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  Speaker 1: paid dividends. Uh, We're not just buying stocks for dividend heal,
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  Speaker 1: We're buying them for total return. So you know, you
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  Speaker 1: could have a company like Mark, for example, that you know,
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  Speaker 1: may react to the fact that they have a drug
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  Speaker 1: that may come be used as a first line treatment
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  Speaker 1: with lung cancer, those types of things. So we're always
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  Speaker 1: looking for things that actually drive stocks beyond just the
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  Speaker 1: fact that they're yield vehicles. I noticed that you've got
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  Speaker 1: a large holding in Microsoft, and I'm wondering whether you
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  Speaker 1: could comment you also have Apple about investing in technology
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  Speaker 1: stocks based on the criteria that you describe that cash generation. Well, one,
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  Speaker 1: I would say one of the things that we think
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  Speaker 1: is very porton is remaining um uh diversified throughout sectors. UM.
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  Speaker 1: Some of my people that I compete with now are
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  Speaker 1: invested basically in consumer stables and utility stocks, and so
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  Speaker 1: they're almost running sector funds UM. So we we do
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  Speaker 1: try to keep it diversified across UM industries. So we
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  Speaker 1: do play in technology for example. And you have names
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  Speaker 1: like Microsoft, and that's a company that you know, a
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  Speaker 1: few years ago people sort of left them for dead
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  Speaker 1: and in a lot of ways, and they've done a
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  Speaker 1: great job. The new CEO came in and really done
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  Speaker 1: a great job of transitioning this company to one where
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  Speaker 1: uh you know, people think of them as one of
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  Speaker 1: the leaders in in UH cloud for example. And so
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  Speaker 1: it's a company generating tremendous fly cash flow. It's probably
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  Speaker 1: it's growing revenues, it's growing income. And those are the
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  Speaker 1: names that you tend to like. Apple is a stock
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  Speaker 1: that we do own. Their generating a tremendous amount of cash.
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  Speaker 1: They have some growth challenges right now, and but we
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  Speaker 1: would tell you that we probably think that that sort
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  Speaker 1: of troughs this year, and uh so that may be
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  Speaker 1: an opportunity to I always think of energy being at
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  Speaker 1: the opposite end of the spectrum from technology, right, it
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  Speaker 1: comes out the ground, it's crude, it's black, etcetera, etcetera.
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  Speaker 1: Uh And xCE on Mobile is your second biggest holding
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  Speaker 1: in the Columbia Dividend Income from funds. PIM just said
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  Speaker 1: g s f t X as a ticker symbol. Uh So,
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  Speaker 1: what what is your outlook? Is it because of x
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  Speaker 1: in particularly or does this also reflect your view for
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  Speaker 1: energy companies more broadly. Well, one of the things we
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  Speaker 1: did in two thousand and fourteen one soil prices cracked. Um,
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  Speaker 1: you know it's I work with two other people, Mike
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  Speaker 1: Barkley and Peter San Touro, and we've all been in
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  Speaker 1: the business over twenty years, and so when you see
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  Speaker 1: oil prices cracked the way they did, that wasn't our
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  Speaker 1: first rodeo. We went through that in the eighties too,
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  Speaker 1: and so we actually de risked the portfolio and went
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  Speaker 1: to companies that we thought had great balance sheets and
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  Speaker 1: and and just great position UM and ex On Mobile.
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  Speaker 1: That that's one of the reasons that we hold this
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  Speaker 1: stock UM. I think one of the things we're seeing
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  Speaker 1: now though, as we are seeing a supply response dramatic
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  Speaker 1: to dramatic cutbacks and cap X and I think that
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  Speaker 1: that has allowed oil prices to stabilize. And so we
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  Speaker 1: actually do think that, you know, there's a good chance
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  Speaker 1: that you know, supply and demand is coming UH is
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  Speaker 1: being matched all of a sudden, and that's probably a
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  Speaker 1: good thing for oil prices. We tend to play with
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  Speaker 1: the companies that historically, you know, just have great balance
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  Speaker 1: sheets and companies that we now have stained power. UM.
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  Speaker 1: I will tell you we'll probably lag with an ex
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  Speaker 1: On Mobile of oil prices go up dramatically, but it
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  Speaker 1: didn't go down dramatically. Actually as a march that was
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  Speaker 1: one of our few oil companies that was actually in
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  Speaker 1: plus territory. So it's it's the way we do a
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  Speaker 1: lot of things. We tend to play stocks with lower
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  Speaker 1: volatility and and and that's been sort of key to
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  Speaker 1: to a lot of our shareholders. Scott maybe just offer
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  Speaker 1: up the ample of t j X companies because they
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  Speaker 1: raised their dividend in March. But that kind of illustrates
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  Speaker 1: your your focus on cash flow. Yeah, and one of
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  Speaker 1: the things that we're always talking to people because again
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  Speaker 1: people make the mistake of focusing on dividends first, and
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  Speaker 1: and we actually think that dividends, you know, actually the
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  Speaker 1: residual that you get from great business operations UM and
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  Speaker 1: t j X is just a great example, you know
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  Speaker 1: that where they increase their dividend over UM, a company
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  Speaker 1: that has consistently growing their dividend for twenty years. What
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  Speaker 1: I love is that the statement that is actually made
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  Speaker 1: by t t X as management and they say, you know,
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  Speaker 1: with our tremendous cash flow and excellent financial returns, remain
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  Speaker 1: committed to returning cash to shareholder, will simultaneously reinvesting in
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  Speaker 1: the business. That's what we want. We want companies growing
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  Speaker 1: their business and growing their dividends. Well, I think a
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  Speaker 1: lot of us wants. That's what Scott Davis. We're very
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  Speaker 1: happy you joined us today. Scott is Senior portfolio a
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  Speaker 1: manager and head of income Strategies at Columbia Thread and
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  Speaker 1: Needle Investments. Coming up We're gonna be looking at the
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  Speaker 1: movers and shakers at the close. Our stocks that are
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  Speaker 1: Dave Wilson way back on Kathleen Hayes along with Tim Fox,
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  Speaker 1: This is Bloomberg