WEBVTT - Columbia's Davis on Finding Quality Dividend Stocks (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot com, the radio, plus Globo Lab and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie Pullett. SMP five hundred index now trading below

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<v Speaker 1>it's record one thirty eight. We have got the S

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<v Speaker 1>and P five hundred index climbing eight points up find

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<v Speaker 1>four tenths of one percent just about thirteen minutes to

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<v Speaker 1>go ahead of the close on this Monday. Down Industrial

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<v Speaker 1>is up eighty eight points to eighteen thousand, two hundred

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<v Speaker 1>thirty four. Again there are five tenths of one percent.

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<v Speaker 1>Nastak is up thirty four points, a gain of seven

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<v Speaker 1>tenths of one percent. The tenure down twenty one thirty seconds,

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<v Speaker 1>with the yield of one point four three percent, Gold

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<v Speaker 1>down three seventy the ounce the thirteen fifty four, a

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<v Speaker 1>drop there of three tenths of one percent, and crude

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<v Speaker 1>oil down cents forty four forty six right now for

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<v Speaker 1>a barrel of West Texas intermediate crude. That is a

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<v Speaker 1>drop right now of two point one percent. So again,

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<v Speaker 1>recapping stocks are higher, but off their session highs. The

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<v Speaker 1>SMP up eight, a gain of four tenths of one percent.

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<v Speaker 1>I'm Charlie Pellot and that's a Bloomberg business flash. Charlie Pella,

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<v Speaker 1>thank you so very much. Time now for the e

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<v Speaker 1>t F report, brought to you by National Realty Providers

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<v Speaker 1>of Satisfaction Guaranteed New York City realty investments see them

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<v Speaker 1>at n r I A dot net. Gold up twenty

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<v Speaker 1>eight percent this year. That means a lot for some

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<v Speaker 1>of the biggest gold e t s. For this now

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<v Speaker 1>we turn to our own Catherine Cowdry. Gold is climbed

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<v Speaker 1>twenty eight percent this year as investors turned to haven's

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<v Speaker 1>in the wake of the UK's Brexit vote and as

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<v Speaker 1>traders cut bets on the Federal Reserve, increasing interest rates

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<v Speaker 1>this year. Bloomberg Intelligence analyst Eric beltounis and what this

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<v Speaker 1>means for the biggest gold ETF, the Spider Gold Shares

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<v Speaker 1>or g l D. G l D has taken in

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<v Speaker 1>thirteen point five billion dollars. That is by far the

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<v Speaker 1>most taken in any year, and we're only halfway done.

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<v Speaker 1>Bealtuna says, there's broad based interest in ETFs in this category.

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<v Speaker 1>You look down the precious metal ttfs, you see fifteen

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<v Speaker 1>different ones have taken in flows, none of them close

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<v Speaker 1>to g l D, but still it means somewhere out

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<v Speaker 1>there people are buying different types of precious metal ttfs.

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<v Speaker 1>That is a sign that the depth of the concern

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<v Speaker 1>in the market right now is great because it just

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<v Speaker 1>means that people are using a different variety of flavors

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<v Speaker 1>to start to work gold into their portfolio. Tuna says

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<v Speaker 1>investors are turning to gold as a crisis head and

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<v Speaker 1>to diversify their portfolios in a time of volatility. That's

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<v Speaker 1>your Bloomberg ETF report. I'm Catherine Cowderie. This is taking

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<v Speaker 1>Stock with Kathleen Hayes and Pim Box on Bloomberg Radio,

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<v Speaker 1>searching for income in a yield starved world. Scott Davis

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<v Speaker 1>his senior portfolio manager and head of income Strategies at

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<v Speaker 1>Columbia thread Needle Investments and he joins us now Boston.

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<v Speaker 1>Scott Davis, thank you very much for being with us.

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<v Speaker 1>What if you could tell us some of your strategies

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<v Speaker 1>to run the Columbia Dividend income funded ticker symbol they're

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<v Speaker 1>a g s F t X. Yeah, thanks for having

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<v Speaker 1>me on UM. You know, I think one of the

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<v Speaker 1>things that does make us unique is dividends are never

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<v Speaker 1>our first cut on a stock. Actually, um, we actually

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<v Speaker 1>look at what we think sources the dividend, and for us,

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<v Speaker 1>that's sustainable pre cash flow from operations. And I think

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<v Speaker 1>that's where oftentimes people get confused. A lot of people

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<v Speaker 1>will talk about diving in the yield, and we we

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<v Speaker 1>prefer to talk about actually income generation and looking for

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<v Speaker 1>companies that can you know, generate decent income but from

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<v Speaker 1>their cash flow from operations. That's how they fund it.

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<v Speaker 1>That's what makes it sustainable over time and and can

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<v Speaker 1>grow that over time. That that that's key to what

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<v Speaker 1>we do. Well. That sounds very sensible to me. What

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<v Speaker 1>what would you say right now is distinguishing companies that

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<v Speaker 1>you know, meet your hurdle, that past that bar, and

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<v Speaker 1>those that don't. Again, what we do is, by first

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<v Speaker 1>of all, we do two things. You know, I think

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<v Speaker 1>a lot of people are concerned that some of the

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<v Speaker 1>dividend stocks have gotten overvalued, and I think there are

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<v Speaker 1>areas where where there is real overvaluation. UM. But what

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<v Speaker 1>we are trying to do is we actually make We

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<v Speaker 1>don't think dividend yield is a value metric. We actually

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<v Speaker 1>use cash flow yield. So most of our companies still

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<v Speaker 1>are you know, our average pre cash flow and our

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<v Speaker 1>companies is about five percent. Market is down under three

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<v Speaker 1>percent currently. A great example of the name would be

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<v Speaker 1>something like a Johnson and Johnson UM. You know this.

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<v Speaker 1>You know, this company has been in business since the

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<v Speaker 1>car Field administration, last of the triple A balance sheets. UH.

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<v Speaker 1>You know, trades in a multi multiple market multiple but

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<v Speaker 1>has great pre cash flow yield and growing pre cash

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<v Speaker 1>flow UH and has basically has a dividend yield above

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<v Speaker 1>that of a tenure treasury and compounds it at about

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<v Speaker 1>seven percent per and their dividend. And I was gonna

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<v Speaker 1>say it's got that. The year to date, the Columbia

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<v Speaker 1>Dividend Income Fund is up about eight a little bit

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<v Speaker 1>more than eight and a half per cent, and that's

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<v Speaker 1>almost twice as good as the SMP five. Yeah, I think,

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<v Speaker 1>you know, some of the things that really have helped

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<v Speaker 1>us this year at the focus on quality yield is

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<v Speaker 1>obviously helped UM. But I think you know, if you

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<v Speaker 1>look at what's gone on for six months in the

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<v Speaker 1>market and for the year, it's it's sort of a

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<v Speaker 1>tale of two cities. I mean, one where and one

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<v Speaker 1>that some people are sort of playing momentum like recovery

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<v Speaker 1>and energy stocks that we've seen, But a lot of

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<v Speaker 1>people really do seem to be seeking out this stability,

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<v Speaker 1>and you know, I think that our focus on quality

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<v Speaker 1>has helped us there. So what is the challenge going ahead? Uh?

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<v Speaker 1>Is it? Uh? The economy growing, getting more strong, and

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<v Speaker 1>the market broadly rising more. So people say, oh, well,

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<v Speaker 1>you know why so I put my money in a

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<v Speaker 1>dividend fund when I could go for something that's got

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<v Speaker 1>more growth or a momentum. I think, yeah, that is

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<v Speaker 1>a risk um. I will see that with certain dividend stocks,

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<v Speaker 1>but a lot of the companies, well, we actually owned

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<v Speaker 1>stocks across the buckets of yield. Uh you know if

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<v Speaker 1>it so over eight percent of the names in SMP

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<v Speaker 1>paid dividends. Uh, We're not just buying stocks for dividend heal,

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<v Speaker 1>We're buying them for total return. So you know, you

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<v Speaker 1>could have a company like Mark, for example, that you know,

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<v Speaker 1>may react to the fact that they have a drug

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<v Speaker 1>that may come be used as a first line treatment

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<v Speaker 1>with lung cancer, those types of things. So we're always

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<v Speaker 1>looking for things that actually drive stocks beyond just the

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<v Speaker 1>fact that they're yield vehicles. I noticed that you've got

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<v Speaker 1>a large holding in Microsoft, and I'm wondering whether you

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<v Speaker 1>could comment you also have Apple about investing in technology

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<v Speaker 1>stocks based on the criteria that you describe that cash generation. Well, one,

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<v Speaker 1>I would say one of the things that we think

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<v Speaker 1>is very porton is remaining um uh diversified throughout sectors. UM.

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<v Speaker 1>Some of my people that I compete with now are

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<v Speaker 1>invested basically in consumer stables and utility stocks, and so

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<v Speaker 1>they're almost running sector funds UM. So we we do

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<v Speaker 1>try to keep it diversified across UM industries. So we

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<v Speaker 1>do play in technology for example. And you have names

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<v Speaker 1>like Microsoft, and that's a company that you know, a

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<v Speaker 1>few years ago people sort of left them for dead

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<v Speaker 1>and in a lot of ways, and they've done a

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<v Speaker 1>great job. The new CEO came in and really done

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<v Speaker 1>a great job of transitioning this company to one where

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<v Speaker 1>uh you know, people think of them as one of

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<v Speaker 1>the leaders in in UH cloud for example. And so

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<v Speaker 1>it's a company generating tremendous fly cash flow. It's probably

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<v Speaker 1>it's growing revenues, it's growing income. And those are the

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<v Speaker 1>names that you tend to like. Apple is a stock

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<v Speaker 1>that we do own. Their generating a tremendous amount of cash.

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<v Speaker 1>They have some growth challenges right now, and but we

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<v Speaker 1>would tell you that we probably think that that sort

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<v Speaker 1>of troughs this year, and uh so that may be

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<v Speaker 1>an opportunity to I always think of energy being at

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<v Speaker 1>the opposite end of the spectrum from technology, right, it

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<v Speaker 1>comes out the ground, it's crude, it's black, etcetera, etcetera.

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<v Speaker 1>Uh And xCE on Mobile is your second biggest holding

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<v Speaker 1>in the Columbia Dividend Income from funds. PIM just said

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<v Speaker 1>g s f t X as a ticker symbol. Uh So,

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<v Speaker 1>what what is your outlook? Is it because of x

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<v Speaker 1>in particularly or does this also reflect your view for

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<v Speaker 1>energy companies more broadly. Well, one of the things we

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<v Speaker 1>did in two thousand and fourteen one soil prices cracked. Um,

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<v Speaker 1>you know it's I work with two other people, Mike

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<v Speaker 1>Barkley and Peter San Touro, and we've all been in

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<v Speaker 1>the business over twenty years, and so when you see

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<v Speaker 1>oil prices cracked the way they did, that wasn't our

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<v Speaker 1>first rodeo. We went through that in the eighties too,

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<v Speaker 1>and so we actually de risked the portfolio and went

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<v Speaker 1>to companies that we thought had great balance sheets and

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<v Speaker 1>and and just great position UM and ex On Mobile.

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<v Speaker 1>That that's one of the reasons that we hold this

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<v Speaker 1>stock UM. I think one of the things we're seeing

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<v Speaker 1>now though, as we are seeing a supply response dramatic

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<v Speaker 1>to dramatic cutbacks and cap X and I think that

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<v Speaker 1>that has allowed oil prices to stabilize. And so we

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<v Speaker 1>actually do think that, you know, there's a good chance

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<v Speaker 1>that you know, supply and demand is coming UH is

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<v Speaker 1>being matched all of a sudden, and that's probably a

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<v Speaker 1>good thing for oil prices. We tend to play with

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<v Speaker 1>the companies that historically, you know, just have great balance

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<v Speaker 1>sheets and companies that we now have stained power. UM.

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<v Speaker 1>I will tell you we'll probably lag with an ex

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<v Speaker 1>On Mobile of oil prices go up dramatically, but it

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<v Speaker 1>didn't go down dramatically. Actually as a march that was

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<v Speaker 1>one of our few oil companies that was actually in

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<v Speaker 1>plus territory. So it's it's the way we do a

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<v Speaker 1>lot of things. We tend to play stocks with lower

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<v Speaker 1>volatility and and and that's been sort of key to

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<v Speaker 1>to a lot of our shareholders. Scott maybe just offer

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<v Speaker 1>up the ample of t j X companies because they

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<v Speaker 1>raised their dividend in March. But that kind of illustrates

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<v Speaker 1>your your focus on cash flow. Yeah, and one of

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<v Speaker 1>the things that we're always talking to people because again

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<v Speaker 1>people make the mistake of focusing on dividends first, and

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<v Speaker 1>and we actually think that dividends, you know, actually the

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<v Speaker 1>residual that you get from great business operations UM and

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<v Speaker 1>t j X is just a great example, you know

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<v Speaker 1>that where they increase their dividend over UM, a company

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<v Speaker 1>that has consistently growing their dividend for twenty years. What

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<v Speaker 1>I love is that the statement that is actually made

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<v Speaker 1>by t t X as management and they say, you know,

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<v Speaker 1>with our tremendous cash flow and excellent financial returns, remain

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<v Speaker 1>committed to returning cash to shareholder, will simultaneously reinvesting in

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<v Speaker 1>the business. That's what we want. We want companies growing

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<v Speaker 1>their business and growing their dividends. Well, I think a

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<v Speaker 1>lot of us wants. That's what Scott Davis. We're very

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<v Speaker 1>happy you joined us today. Scott is Senior portfolio a

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<v Speaker 1>manager and head of income Strategies at Columbia Thread and

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<v Speaker 1>Needle Investments. Coming up We're gonna be looking at the

0:11:06.160 --> 0:11:09.040
<v Speaker 1>movers and shakers at the close. Our stocks that are

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<v Speaker 1>Dave Wilson way back on Kathleen Hayes along with Tim Fox,

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<v Speaker 1>This is Bloomberg