WEBVTT - Integrity’s Radke and Morey on Dividend Investing 0:00:12.800 --> 0:00:15.920 Welcome to Inside Active, a podcast about active managers that 0:00:16.000 --> 0:00:18.840 goes beyond sound bites and headlines and look steeper into 0:00:18.880 --> 0:00:24.200 their processes, challenges and philosophies and security selection. I'm David Cone, I, 0:00:24.360 --> 0:00:27.720 lead mutual fund on active research at Bloomberg Intelligence. Today 0:00:27.880 --> 0:00:30.680 my co host is Michael Casper, small cap and sector 0:00:30.720 --> 0:00:33.879 strategist at Bloomberg Intelligence. Mike, thank you for joining me 0:00:33.920 --> 0:00:35.000 today as my co host. 0:00:35.400 --> 0:00:35.960 Thanks David. 0:00:36.040 --> 0:00:38.440 So, there was a note published yesterday by Gina and 0:00:38.479 --> 0:00:41.800 Wendy that I wanted to ask you about. You know, 0:00:41.840 --> 0:00:45.000 they mentioned stock buybacks have increased during the summer, you know, 0:00:45.040 --> 0:00:49.400 wild dividends have risen. Why is capital deployment increasing? 0:00:50.040 --> 0:00:52.720 Well, there's two big factors at play. The first is 0:00:52.760 --> 0:00:57.240 that cash is at or near all time highs if 0:00:57.280 --> 0:01:00.840 you include financials, if you take out financial in real estate, 0:01:00.840 --> 0:01:03.920 you actually get a much more muted picture, but still 0:01:04.280 --> 0:01:08.000 compared to the pre pandemic period. We're looking at S 0:01:08.040 --> 0:01:11.360 and P five hundred companies flush with cash right now, 0:01:12.200 --> 0:01:16.000 and they're starting to use that in various ways. Buybacks 0:01:16.000 --> 0:01:18.520 has been the main way they've been deploying capital. 0:01:18.600 --> 0:01:19.080 Recently. 0:01:19.880 --> 0:01:22.840 In the second quarter, buybacks jump thirty four percent from 0:01:22.880 --> 0:01:25.160 a year ago for S and P five hundred companies. 0:01:25.480 --> 0:01:26.840 I think part of that has to do with some 0:01:26.880 --> 0:01:30.360 of the volatility that there wasn't in stocks during the 0:01:30.400 --> 0:01:33.320 second quarter. You know, companies prefer to back cheap or 0:01:33.400 --> 0:01:36.280 buyback stocks when it's cheap, But a lot of that 0:01:36.520 --> 0:01:39.040 does have to do with the high cash positions and 0:01:39.400 --> 0:01:41.960 kind of trying to boost their stocks. Second of all, 0:01:42.480 --> 0:01:46.920 dividends are right about on the pre pandemic norm now 0:01:48.000 --> 0:01:53.160 in terms of payout, and CAPEX has really been surging. 0:01:53.240 --> 0:01:55.840 Capex has been one of the main ways that that 0:01:55.880 --> 0:01:58.400 companies have been deploying capital, and a lot of that, 0:01:58.440 --> 0:02:01.120 of course is coming from tech and their AI spending, 0:02:01.240 --> 0:02:04.360 but in general, it all comes back to how big 0:02:04.480 --> 0:02:06.520 the cash positions are for S and P five hundred 0:02:06.560 --> 0:02:07.360 companies right now. 0:02:07.440 --> 0:02:11.200 Well, as we talk about capital deployment and dividends more specifically, 0:02:11.560 --> 0:02:14.440 i'd like to bring on today's guests. Shannon Radke is 0:02:14.520 --> 0:02:18.320 CEO of Integrity Viking Funds and senior portfolio manager for 0:02:18.360 --> 0:02:21.800 a number of the firm's mutual funds, including the Integrity 0:02:21.880 --> 0:02:26.080 Dividend Harvest Fund, which is a ticker of IDIVX. Also 0:02:26.240 --> 0:02:29.720 joining us is Michael Moriy, chief investment officer Viking Fund 0:02:29.720 --> 0:02:32.480 Management and co portfolio manager on a number of the 0:02:32.520 --> 0:02:35.320 firm's funds. Shannon, Mike, thank you so much for joining 0:02:35.400 --> 0:02:35.880 us today. 0:02:35.960 --> 0:02:37.160 Thank you guys for having us. 0:02:37.280 --> 0:02:40.440 So I'd like to start off hearing more about your backgrounds. 0:02:40.800 --> 0:02:42.840 So we'll start with you, Shannon. How did you get 0:02:42.880 --> 0:02:44.320 your start in the investment industry? 0:02:44.639 --> 0:02:45.560 Sure, I guess my. 0:02:45.520 --> 0:02:50.000 First exposure was an economics class in high school where 0:02:50.040 --> 0:02:53.320 actually each student got to build their own stock portfolio, 0:02:53.360 --> 0:02:55.919 which I thought was pretty cool. That kind of led 0:02:55.960 --> 0:03:00.000 me to pursue a finance degree at the University of Northakota, 0:03:02.040 --> 0:03:06.160 where I fortunately there were more investment classes there economics 0:03:06.160 --> 0:03:10.000 classes and so on, so I continued to enjoy I 0:03:10.000 --> 0:03:14.560 guess that field of interest. I also joined a student 0:03:14.560 --> 0:03:17.760 investment club at und Then, you know, as I was 0:03:17.800 --> 0:03:21.800 approaching graduation, I decided my preference was to be close 0:03:21.840 --> 0:03:26.120 to home in mine at North Dakota, which left my 0:03:26.200 --> 0:03:30.160 options at the time I thought fairly limited. I was 0:03:30.200 --> 0:03:34.200 looking at potentially working for a bank, bank, trust department, 0:03:34.440 --> 0:03:39.040 or brokerage firm, and that's when I heard that Bob 0:03:39.080 --> 0:03:44.120 Wallstead from mine at I had just started up the 0:03:44.160 --> 0:03:48.880 company that would ultimately become Integrity Mitual Funds, so the 0:03:48.960 --> 0:03:52.000 timing could not have been better. On that I was 0:03:52.040 --> 0:03:53.840 able to go back to my hometown and mine not 0:03:54.440 --> 0:03:56.520 go to work for Bob in the fall of nineteen 0:03:56.560 --> 0:04:01.720 eighty eight and start pursuing my investment career there. I 0:04:01.760 --> 0:04:07.160 actually started out in sales, and shortly after we opened 0:04:07.160 --> 0:04:10.040 our first fund, which was actually at North Dakota Tax 0:04:10.080 --> 0:04:15.680 Free Fund, we decided to bring in house the shareholder servicing, 0:04:16.480 --> 0:04:20.120 fund accounting, and fund admin and Bob needed a guy 0:04:20.160 --> 0:04:22.719 to run that, so I became operations manager at the 0:04:22.720 --> 0:04:26.479 time we brought that in house. Eventually he promoted me 0:04:26.520 --> 0:04:30.719 to COO where I worked directly with the various department heads, 0:04:30.800 --> 0:04:37.760 including the PMS, which I very much enjoyed. Then in 0:04:37.839 --> 0:04:40.360 nineteen ninety eight, I left the firm to kind of 0:04:40.400 --> 0:04:43.400 pursue a dream and open my own firm. I was, 0:04:43.480 --> 0:04:47.159 I guess thirty one years old at the time, so 0:04:47.200 --> 0:04:51.080 it was pretty big undertaking for me. That's when I 0:04:51.080 --> 0:04:53.760 got to work on writing the registration statement for Viking 0:04:53.839 --> 0:04:58.640 Mutual Funds, and that really was a big undertaking, big 0:04:58.680 --> 0:05:03.039 process when you register a group of mutual funds with 0:05:03.080 --> 0:05:07.080 the SEC. You know, it's not just the funds that 0:05:07.080 --> 0:05:11.440 you're registering. You need to create and register an investment advisor. 0:05:12.320 --> 0:05:14.960 You need to create and register a proper dealer to 0:05:15.040 --> 0:05:19.480 service underator for the funds. And we also decided to 0:05:19.520 --> 0:05:21.880 create and register a transfer agent so that we could 0:05:21.880 --> 0:05:24.559 do the shareholders servicing and fund of coning in house. 0:05:25.680 --> 0:05:27.919 So that took quite a period of time, you know, 0:05:28.040 --> 0:05:31.120 between writing the prospectus, the SAI, which both go in 0:05:31.160 --> 0:05:35.080 the registration statement, the various exhibits, the agreements between the 0:05:35.120 --> 0:05:39.839 funds and the service providers, heck of a lot of 0:05:39.839 --> 0:05:41.919 work in a pretty big document that actually ends up 0:05:41.920 --> 0:05:45.680 getting filed with the SEC. So at Viking we opened 0:05:45.720 --> 0:05:50.920 our first fund in nineteen ninety nine. 0:05:49.320 --> 0:05:53.159 And it was just a tremendous experience for me. I 0:05:53.160 --> 0:05:54.000 think I've worn. 0:05:53.880 --> 0:05:56.960 Every hat you can imagine in the mutual fund industry. 0:05:57.880 --> 0:06:03.800 So I was actually seeing shareholder transactions, calculating net asset 0:06:03.880 --> 0:06:10.040 values for the funds, creating and filing the sem annual 0:06:10.120 --> 0:06:14.560 reports to shareholders, filing various other reports with the SEC, 0:06:16.120 --> 0:06:20.400 monitoring for compliance, doing the portfolio management, and they even 0:06:20.440 --> 0:06:23.640 helped out the wholesalers from time to time. So I 0:06:23.680 --> 0:06:27.960 think that experience at Viking really helped to make me a. 0:06:27.920 --> 0:06:31.320 Better CEO today because I really. 0:06:31.240 --> 0:06:35.960 Understand the inner workings of the entire mutual fund management company. 0:06:36.920 --> 0:06:38.120 So as we move forward. 0:06:38.440 --> 0:06:41.240 In two thousand and nine, came back together with Bob 0:06:41.640 --> 0:06:46.240 Wolstead and we merged Integrity and Viking together to form 0:06:46.320 --> 0:06:47.600 Integrity Viking Funds. 0:06:47.720 --> 0:06:49.200 And that's how we have our name today. 0:06:49.520 --> 0:06:52.599 And then at the time that we came back together, 0:06:52.640 --> 0:06:55.680 I believe our AUM was sitting around two hundred and 0:06:55.720 --> 0:06:59.320 fifty million. Today we are between nine hundred million and 0:06:59.360 --> 0:07:02.839 a billion, so we have grown. We're pretty proud of 0:07:02.839 --> 0:07:06.480 that growth. As you may know, it's pretty difficult in 0:07:06.560 --> 0:07:09.000 the day and age for active managers to grow their 0:07:09.040 --> 0:07:11.640 assets to actually have net inflows. 0:07:11.360 --> 0:07:12.160 Buy and large. 0:07:12.280 --> 0:07:17.080 On average, active managers have had outflows for many years off, 0:07:17.120 --> 0:07:20.520 not decades, with a lot of money going into index 0:07:20.600 --> 0:07:21.600 funds and ETFs. 0:07:21.920 --> 0:07:24.360 So pretty pleased with where we're at. 0:07:24.520 --> 0:07:27.120 You know, we often hear people getting pretty surprised when 0:07:27.160 --> 0:07:30.200 the year we're operating out of North Dakota. 0:07:30.480 --> 0:07:32.200 They're like, what you're where? 0:07:34.240 --> 0:07:37.080 But I always say, why not? We have great people 0:07:37.120 --> 0:07:40.240 in North Dakota. They have a great work ethic. We 0:07:40.320 --> 0:07:44.520 have excellent universities. Und where I went in Grand Forks, 0:07:44.760 --> 0:07:47.920 Minor State University is a great university. It has an 0:07:47.920 --> 0:07:51.320 excellent finance program. Many of our employees have come from 0:07:51.360 --> 0:07:55.280 my state, so we're lucky to have that university here. 0:07:56.320 --> 0:07:58.960 We often take interns from the U. I would say 0:07:58.960 --> 0:08:02.640 about half of them come employees, so happy to be 0:08:02.680 --> 0:08:04.640 here working out of mine at We also. 0:08:04.480 --> 0:08:05.960 Have a lot of employee ownership. 0:08:06.320 --> 0:08:08.640 I think that's important for a company to have your 0:08:08.680 --> 0:08:09.960 employees have skin in the game. 0:08:10.440 --> 0:08:12.200 Nice Mike, How about yourself. 0:08:12.320 --> 0:08:14.600 I was excelled in math even from a young age, 0:08:15.040 --> 0:08:18.360 you know, and growing up my father was a commodities broker, 0:08:18.440 --> 0:08:23.080 so I've always found investments intriguing. My first job I 0:08:23.200 --> 0:08:25.280 had in high school was at a bank, so it 0:08:25.440 --> 0:08:28.800 was smaller number of stuff, but still, you know, just 0:08:29.240 --> 0:08:30.040 very intriguing. 0:08:30.480 --> 0:08:33.000 So my mind has always been kind of around numbers. 0:08:33.960 --> 0:08:36.960 When I went to college, you know, I attended my 0:08:37.040 --> 0:08:40.640 first year, I didn't know if I still wanted to, 0:08:40.880 --> 0:08:42.160 you know, pursue finance. 0:08:42.559 --> 0:08:45.080 Geology had really intrigued me. 0:08:45.200 --> 0:08:47.800 So my freshman year I took a couple of different 0:08:48.240 --> 0:08:52.920 classes in each of those respective fields and ultimately decided 0:08:52.960 --> 0:08:57.079 on finance. And that's at minut State University where I 0:08:57.120 --> 0:09:01.359 attended college. I know Shannon did mention their finance program. 0:09:02.040 --> 0:09:04.440 I'd like to give a shout out to Jerry Sti. 0:09:05.080 --> 0:09:07.560 I think he was a professor that really pushed me 0:09:07.559 --> 0:09:10.400 over the edge and got me fully committed to finance. 0:09:11.559 --> 0:09:15.520 Senior year at Minus State University, I did an intern 0:09:15.720 --> 0:09:21.400 at Integrity Viking Funds and began working when I graduated 0:09:21.520 --> 0:09:23.640 in twenty ten at Integrity Biking. 0:09:24.160 --> 0:09:26.319 You know, I think we should, you know, kind of 0:09:26.360 --> 0:09:29.439 really talk about the Integrity Dividend Harvest Fund. I think 0:09:29.440 --> 0:09:32.720 it's an interesting fund. What is the process or the 0:09:32.760 --> 0:09:36.320 investment process that you guys go through to manage this fund? 0:09:37.760 --> 0:09:39.200 Well, you know, the. 0:09:39.760 --> 0:09:42.960 First kind of step of the processes is defining the 0:09:43.000 --> 0:09:47.520 goals of the portfolio. So you know, we have a 0:09:47.600 --> 0:09:51.880 three tiered goal system where we're trying to maximize the 0:09:51.960 --> 0:09:55.440 current income as well as maximize the growth of that 0:09:55.520 --> 0:10:00.560 income to our shareholders, all while minimizing volatility. And we 0:10:00.600 --> 0:10:05.679 feel this recipe and does an exceptional job providing our 0:10:05.800 --> 0:10:10.680 shareholders superior risk adjusted returns you know, throughout the full 0:10:10.720 --> 0:10:13.600 cycle of the market. I think it's something that's kind 0:10:13.600 --> 0:10:17.240 of gotten lost in this era or decade plus, you know, 0:10:17.360 --> 0:10:21.240 period where growth has reigned supreme, you know, where the 0:10:21.360 --> 0:10:24.360 classic value investing you know. 0:10:24.600 --> 0:10:27.280 Still has a place in people's portfolio. 0:10:27.559 --> 0:10:30.640 And on going forward basis, you know, I think it's 0:10:30.640 --> 0:10:33.640 going to fully you know, solidify itself, you know, as 0:10:33.880 --> 0:10:36.599 as you know, a core of a portfolio. 0:10:37.160 --> 0:10:37.920 You know, if you look. 0:10:37.800 --> 0:10:42.160 At history, value has a very strong track record of 0:10:43.320 --> 0:10:48.080 outperforming growth, you know, despite the recent performance of growth. 0:10:48.520 --> 0:10:51.240 So we feel that value is very important and dividend 0:10:51.280 --> 0:10:55.400 investing is a true component component of value. So with 0:10:55.480 --> 0:10:59.800 the defined portfolio goals, you know, we we really have 0:11:00.120 --> 0:11:04.240 size on maintaining our investment style and our discipline regardless 0:11:04.240 --> 0:11:07.559 of market conditions. So we feel that removes a lot 0:11:07.600 --> 0:11:11.440 of emotions from what we do and it's more you know, 0:11:11.679 --> 0:11:14.320 factual and fundamental driven. 0:11:15.200 --> 0:11:18.360 That would be our process. You know. 0:11:18.400 --> 0:11:25.040 From there, we run the equities through our key portfolio 0:11:25.040 --> 0:11:28.760 metrics screen which will ultimately define our universe. 0:11:29.360 --> 0:11:29.560 You know. 0:11:29.640 --> 0:11:32.920 So the metrics that we are looking at in our 0:11:32.960 --> 0:11:38.880 initial screen are beata the current yield of a company 0:11:39.200 --> 0:11:42.320 the number of years a company has consecutively increased its 0:11:42.400 --> 0:11:44.679 dividend and market capitalization. 0:11:45.440 --> 0:11:46.760 So those are our four key. 0:11:46.600 --> 0:11:50.559 Portfolio metrics and those are used to define the dividend universe. 0:11:50.760 --> 0:11:53.200 And once we have our dividend universe, we put it 0:11:53.280 --> 0:11:57.960 into a tiering system. You know, so companies that meet 0:11:58.200 --> 0:12:01.760 all four of the requirements of the metrics that we're 0:12:01.800 --> 0:12:05.240 looking for would be considered a Tier one company. Tier 0:12:05.360 --> 0:12:08.719 two company would meet three out of those four metrics, 0:12:08.880 --> 0:12:11.200 and then a Tier three company would only meet two 0:12:11.720 --> 0:12:12.880 out of the four metrics. 0:12:13.800 --> 0:12:16.280 And by having a blend of Tier one. 0:12:16.120 --> 0:12:19.679 Two, and three companies from our dividend universe provides us 0:12:19.720 --> 0:12:23.520 with ample flexibility to meet the goals of the portfolio. Last, 0:12:23.559 --> 0:12:28.160 once we have our universe defined, we get into security selection, 0:12:28.640 --> 0:12:32.040 and this is completely driven by how each individual company 0:12:32.360 --> 0:12:36.760 contributes to the goals of the overall portfolio. Two great 0:12:36.800 --> 0:12:41.320 examples of how we use our process and how a 0:12:41.400 --> 0:12:46.240 company can get positioned into the portfolio would be Abby. 0:12:47.480 --> 0:12:50.840 You know, we've owned this company almost sense inception. 0:12:51.800 --> 0:12:56.520 It caught our radar because of its extremely attractive dividend yield, 0:12:57.040 --> 0:13:00.960 its impressive growth rate of its dividend, which was largely 0:13:01.040 --> 0:13:05.239 driven by their blockbuster drug heme era, their ability to 0:13:05.280 --> 0:13:09.280 integrate and expand their pipeline, you know, to offset the 0:13:09.320 --> 0:13:10.479 loss of exclusivity. 0:13:11.120 --> 0:13:11.959 But when you look. 0:13:11.800 --> 0:13:15.920 At how it fits into our process, it meets, you know, 0:13:16.000 --> 0:13:17.720 all the different pillars. 0:13:17.640 --> 0:13:18.240 Of our growth. 0:13:18.320 --> 0:13:21.240 It has above average divining neal, above average dividend growth, 0:13:21.280 --> 0:13:26.160 and low volatility. Is a dreamstock for this portfolio. Another example, 0:13:26.360 --> 0:13:28.920 so that would be a Tier one company. Another example 0:13:29.120 --> 0:13:32.320 of a different tier company would be a Broadcome you 0:13:32.320 --> 0:13:34.640 know where when we first bought the name back in 0:13:34.640 --> 0:13:38.080 twenty and eighteen, it was only a Tier three company. 0:13:38.160 --> 0:13:40.960 It only had nine years of dividend increases. 0:13:41.000 --> 0:13:45.079 But we looked at you know, the historical dividend increases 0:13:45.120 --> 0:13:48.560 out of this name, some recent acquisitions they made that 0:13:48.960 --> 0:13:54.040 solidified and smoothed their cash flows because of more recurring 0:13:54.440 --> 0:13:58.079 software sales. It really started to fit and it also 0:13:58.120 --> 0:14:01.600 allowed us to increase our ex closure to the technology sector, 0:14:01.679 --> 0:14:06.040 which you know, with it being a dividend investor, you know, 0:14:06.080 --> 0:14:09.120 the technology sector, it's it's difficult to find quality yield. 0:14:09.920 --> 0:14:12.600 You know, it seems like there's more value traps or 0:14:12.720 --> 0:14:16.120 extremely low dividend yields because they're focused on growth. So 0:14:16.240 --> 0:14:19.840 when Broadcom walked into our universe, we certainly took advantage 0:14:19.880 --> 0:14:23.760 of that and established a decent position because of how 0:14:24.160 --> 0:14:27.360 it was contributing to the yield of the fond as 0:14:27.360 --> 0:14:29.960 well as the growth of income. You know, So we're 0:14:30.000 --> 0:14:32.360 willing to sacrifice taken on a little bit more risk 0:14:32.400 --> 0:14:36.800 because of the excess you know, contribution it gave to 0:14:37.080 --> 0:14:41.400 the yield and growth of yield. You know, So when 0:14:41.400 --> 0:14:44.160 looking at our process and how you know I would 0:14:44.240 --> 0:14:46.920 rate it, you know, when looking at you know, our 0:14:47.240 --> 0:14:50.480 process since inception and the performance you know it has 0:14:50.520 --> 0:14:54.440 delivered absolute superior not only risk adjusted returns, but absolute 0:14:54.480 --> 0:14:59.680 returns versus our our peers, which in a sense is 0:15:00.120 --> 0:15:02.640 returning more than our peers while taking on less risk. 0:15:05.120 --> 0:15:08.760 Now you mentioned how you cheer the companies right by 0:15:09.160 --> 0:15:13.640 dibend yield and so on. Are there any specific metrics 0:15:13.680 --> 0:15:16.920 you like to look at to assess the sustainability of dividends? 0:15:17.480 --> 0:15:21.160 Yeah, dividend history is probably the number one, you know. 0:15:21.240 --> 0:15:23.880 So the average company within our portfolio has raised its 0:15:23.880 --> 0:15:27.240 dividend for twenty four and second years and that gives us, 0:15:27.600 --> 0:15:30.560 you know, pretty good comfort that you know, we're going 0:15:30.640 --> 0:15:33.280 to be able to you know, deliver that that growing 0:15:33.320 --> 0:15:35.120 income stream to our shareholders. 0:15:35.600 --> 0:15:36.360 And we have a. 0:15:36.280 --> 0:15:39.800 Successfully done that since inception. We've grown the dividend every 0:15:39.840 --> 0:15:43.000 single year, never seen a drop. And that's a commitment 0:15:43.040 --> 0:15:45.360 that you know, we have on a going for basis 0:15:45.400 --> 0:15:48.600 is to grow that dividend on a going for basis. 0:15:50.560 --> 0:15:52.840 You know, other metrics that we're going to look at 0:15:52.840 --> 0:15:56.280 would be a company's yield relative to its historic yield. 0:15:56.440 --> 0:15:59.520 You know, it's you know, another valuation metric that kind 0:15:59.520 --> 0:16:00.280 of tells you. 0:16:00.080 --> 0:16:04.920 You, you know, what income you're getting for what I'm paying. Obviously, 0:16:04.960 --> 0:16:08.280 the payout ratio is going to be a metric that. 0:16:08.200 --> 0:16:08.880 We look at. 0:16:09.400 --> 0:16:12.880 A net debt to EBITA is a very important one 0:16:13.200 --> 0:16:16.400 because if that number begins to climb, you're going to 0:16:16.480 --> 0:16:20.280 have to start questioning the you know, ability of the 0:16:20.280 --> 0:16:23.920 company to continue to pay that dividend and they may 0:16:23.960 --> 0:16:27.200 have to put their focus elsewhere, which puts a little 0:16:27.240 --> 0:16:28.880 cloud over the dividend side of things. 0:16:29.880 --> 0:16:33.960 And one can't deny long term, a total return of 0:16:34.000 --> 0:16:35.920 a stock is very important. 0:16:36.800 --> 0:16:39.200 You know, if you just simply look at yield in 0:16:39.400 --> 0:16:42.080 particular dividend metrics without looking at how the company is 0:16:42.120 --> 0:16:44.720 actually returned over a longer term period like ten years, 0:16:45.560 --> 0:16:47.280 you can find yourself a value trap. 0:16:49.520 --> 0:16:52.800 And do you care about buybacks at all, you know, 0:16:52.840 --> 0:16:54.720 trying to deliver higher shareholder yield? 0:16:55.040 --> 0:16:56.400 Yeah, definitely we do. 0:16:56.840 --> 0:16:59.880 We do place more emphasis on yield, you know, as 0:17:00.040 --> 0:17:04.639 ours returning capital to shareholders. Because this is a dividend fund, 0:17:04.960 --> 0:17:08.240 we're paying most attention to the regular dividends. Occasionally there's 0:17:08.280 --> 0:17:14.000 a special dividend, but really any form of returning capital 0:17:14.040 --> 0:17:17.719 to shareholders we like to see that, including buybacks. So 0:17:17.920 --> 0:17:19.560 definitely we're looking at that as well. 0:17:20.880 --> 0:17:23.600 And one thing I would add to that is dividends are. 0:17:23.440 --> 0:17:28.200 Definitely more direct to investors, you know, where share purchases 0:17:28.240 --> 0:17:33.800 can be overshadowed by you know, executive compensation or share incentives. 0:17:35.600 --> 0:17:37.040 I do you want to ask a follow up question 0:17:37.680 --> 0:17:41.199 regarding valuations. You mentioned you looked at historic yields, but 0:17:41.640 --> 0:17:45.199 are there other types of valuation metrics or just you know, 0:17:45.320 --> 0:17:48.560 a way you look at valuations and underlying securities. 0:17:49.200 --> 0:17:51.320 Yeah, I think price to earnings would be the predominant 0:17:51.359 --> 0:17:53.280 one that we use for a fund like this because 0:17:53.280 --> 0:17:56.160 of how you know, developed the companies are that we're 0:17:56.840 --> 0:17:59.960 invested in, and you know, the approach that we take, 0:18:00.240 --> 0:18:03.200 We're going to look at individual company price to earnings 0:18:03.320 --> 0:18:07.239 ratio versus its historic range, you know where it is 0:18:07.280 --> 0:18:11.320 at on the range, as well as peer analysis, sector analysis, 0:18:11.359 --> 0:18:15.040 and broad market analysis. You know, so by looking at 0:18:15.080 --> 0:18:18.760 all those different phases, you're able to identify pockets of 0:18:18.800 --> 0:18:21.440 opportunity not just on the individual stock side of things, 0:18:21.440 --> 0:18:23.520 but also sector industry side of things. 0:18:24.680 --> 0:18:27.120 You know, with that by gearing more, you. 0:18:27.080 --> 0:18:31.280 Know, money towards attract evaluation, you know, you get the 0:18:31.320 --> 0:18:35.119 opportunity for a multiple expansion and then vice versa. 0:18:35.200 --> 0:18:37.320 When we begin to see extreme valuation. 0:18:38.600 --> 0:18:42.679 And I say that because you know, I feel selling 0:18:42.720 --> 0:18:45.240 a company if it's a you know, two to three 0:18:45.320 --> 0:18:49.720 turns above its historical range or average range, you know, 0:18:49.840 --> 0:18:53.119 isn't necessarily fit the mantra of long term investing. The 0:18:53.240 --> 0:18:56.359 extreme would be when you're five, six, seven turns above 0:18:56.359 --> 0:18:58.840 its historic average. That's where we're going to start to 0:18:59.280 --> 0:19:03.440 decrease the position. And you know that's largely a function 0:19:04.080 --> 0:19:07.720 of multiple compression in contraction. Over time, you know, these 0:19:07.720 --> 0:19:11.479 companies will revert to their mean. And you know, if 0:19:11.520 --> 0:19:14.720 you're if you're heavily exposed to overvalued companies, you're you're 0:19:14.760 --> 0:19:16.680 you're adding more risk to your portfolio. 0:19:17.000 --> 0:19:20.960 There's been a few companies recently initiating dividends. Meta comes 0:19:20.960 --> 0:19:24.600 to mind. Do you care about those stocks at all? 0:19:24.640 --> 0:19:27.160 Are you willing to go into them as they initiate, 0:19:27.240 --> 0:19:29.200 or do you have to kind of wait for the 0:19:29.800 --> 0:19:31.800 consecutive history of dividends. 0:19:32.560 --> 0:19:36.560 So with our tearing system, we do have flexibility in 0:19:36.600 --> 0:19:41.240 that front. It's pretty rare that we're going to invest 0:19:41.240 --> 0:19:44.679 in a company with less than five years, you know, 0:19:44.760 --> 0:19:47.359 as in the case of Broadcom, we waited until they 0:19:47.400 --> 0:19:50.280 were approaching that ten year mark, and we were highly 0:19:50.320 --> 0:19:52.840 confident that they were going to excel through that tenure, 0:19:52.920 --> 0:19:55.760 so we established a position. You know, but when looking 0:19:55.760 --> 0:19:59.840 at these initiators, it's not very common where a company 0:20:00.000 --> 0:20:02.440 initiates a dividend and it's it's going to fall into 0:20:02.440 --> 0:20:05.280 our universe because you know that the yield is going 0:20:05.280 --> 0:20:07.479 to be so light from the get go. So we 0:20:07.560 --> 0:20:10.560 want the story to mature and for them to prove 0:20:10.640 --> 0:20:13.480 up that they're fully committed to the dividend, and that's 0:20:13.520 --> 0:20:16.760 when they would enter our universe and we would identify 0:20:16.800 --> 0:20:19.200 and decide whether it's an appropriate stock. 0:20:19.040 --> 0:20:19.600 For our fund. 0:20:20.960 --> 0:20:24.480 Do you consider the macro environment at all when you're 0:20:24.520 --> 0:20:26.000 looking at companies, Well, the. 0:20:25.880 --> 0:20:28.600 Macro environment, you know, I think is going to impact 0:20:29.560 --> 0:20:32.960 you know, each sector independently, you know, but we're pretty 0:20:33.000 --> 0:20:37.280 agnostic about the macro environment, you know, by you know, 0:20:37.400 --> 0:20:41.879 following our process in committing to high quality companies with 0:20:41.960 --> 0:20:47.119 wide modes you know, really really drives our long term performance. 0:20:47.760 --> 0:20:50.840 The macro environment does create pockets of opportunity. 0:20:51.960 --> 0:20:52.159 You know. 0:20:52.200 --> 0:20:56.040 A couple of great examples would be back in twenty sixteen, 0:20:56.280 --> 0:21:00.159 you know, when the bond market kind of turned, you know, 0:21:00.200 --> 0:21:03.200 the bond proxies you know, started to come under pressure, 0:21:03.280 --> 0:21:05.879 and we were able to get ahead of that, you know, 0:21:05.960 --> 0:21:08.720 by reducing our exposure to our consumer staples. 0:21:09.359 --> 0:21:11.000 You know, before you know, the. 0:21:11.480 --> 0:21:14.480 Downturn happened, and that was largely a function you know, 0:21:14.520 --> 0:21:17.520 of the macro It was macro driven as well as 0:21:17.560 --> 0:21:21.520 extreme valuation within consumer staples. The same thing happened in 0:21:21.560 --> 0:21:24.840 twenty twenty two, you know, or the macro environment you know, 0:21:25.040 --> 0:21:30.640 pro push down the technology sector and again created opportunities 0:21:30.720 --> 0:21:33.320 as the share price fall yields price and we were 0:21:33.359 --> 0:21:35.680 able to pick up you know, some technology names on 0:21:35.760 --> 0:21:39.240 the cheap with you know, acceptable dividend yields, you know, 0:21:39.320 --> 0:21:40.760 for how the you know, the. 0:21:40.720 --> 0:21:43.119 Companies are going to contribute to the portfolio goals. 0:21:43.400 --> 0:21:45.800 And the most recent one was just late last year, 0:21:46.440 --> 0:21:49.840 we took our utility exposure you know, from eight percent 0:21:49.960 --> 0:21:53.720 to close to fifteen percent just because of the backdrop 0:21:53.840 --> 0:21:58.960 the attract evaluation, the you know, acceleration in capex which 0:21:59.000 --> 0:22:01.600 will lead to further grow both largely driven by the 0:22:01.640 --> 0:22:05.520 speculation of load growth driven by data centers. 0:22:06.119 --> 0:22:08.639 So what do you identify as the biggest risk to 0:22:08.880 --> 0:22:12.480 dividend investing broadly? Is it just kind of higher inflation, 0:22:12.640 --> 0:22:15.520 higher rates persisting for longer making bonds more attractive, or 0:22:15.520 --> 0:22:16.240 is it something else? 0:22:16.760 --> 0:22:19.960 I would probably tend to agree that rates, you know, 0:22:20.000 --> 0:22:23.320 would be you know the biggest you know. 0:22:23.320 --> 0:22:27.160 Threat time to time, I think dividend stocks go out 0:22:27.200 --> 0:22:30.280 of favor, and you know, this has happened numerous times 0:22:30.280 --> 0:22:34.120 since we open the fund, you know, and recently with 0:22:35.359 --> 0:22:38.200 short term interest rates so high and you know where 0:22:38.200 --> 0:22:39.800 people could go out and get a five five and 0:22:39.800 --> 0:22:42.920 a half percent CD or you know the same thing 0:22:42.960 --> 0:22:48.120 in a money market fund that competed pretty pretty hard 0:22:48.160 --> 0:22:51.679 against you know, dividend stocks and you know fun link 0:22:51.720 --> 0:22:53.600 ours that might pay three three and a half percent, 0:22:54.240 --> 0:22:58.000 while individual investors can go and buy a CD at 0:22:58.000 --> 0:22:59.360