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Dividend Growth Quarterly Update: Q4 2020 Thumbnail

Dividend Growth Quarterly Update: Q4 2020

Investment Management Dividend Growth

Most of our clients carry significant single security risk by holding a high concentration of their employer stock. In fact, C-Suite and Named Executive Officers (NEO’s) have enforced “holding requirements” as well as peer pressure to hold concentrations in excess of their “holding requirement.” Story believes that the single best equity diversifier of this single security concentration risk is the strategy of Dividend Growth, owned across multiple capitalizations.

This quarter’s story is Small Cap Dividend Growth. This market capitalization lagged for the first three quarters of 2020 and then accelerated in Q4 with a 21.13% gain for the quarter but a lagging 6.88% on the year. One cannot know in advance which capitalization will perform better in the short run, but even with a mediocre 2020 with a rotation toward value seeming to take shape we hope to see 4th quarter momentum continue in small cap dividend growth moving into 2021.  

The question we ask ourselves every quarter: Does the Dividend Growth Strategy continue to deliver better performance than its index peers in good and bad markets, across all market capitalizations, with less risk than the indexes? 

The answer, in our opinion, remains a resounding: YES!

2020 felt like a roller coaster for all of us and though COVID was the story we remember, the downdraft in March will be all but forgotten in 5-10 years because overall, 2020, from a stock market perspective was wonderful with the S&P up 18.3%!

Just as this would not give a full picture of how we felt during the year, looking at the final year end return for our favorite managers does not convey the volatility throughout the year. If we just look at the yearend return in the market, we might think this was a pretty good year, and it was. But look at the S&P chart from this year and you get a much fuller picture.

One of our favorite analysts, David Bahnsen, captured this roller coaster movement brilliantly in a recent post. Even the best performing assets in 2020 had tremendous dips in February/March. For example, the S&P 500 dipped as far as

-33.9% but ended the year +18.3%. While we often remember a year by its 12/31 number let us not forget that great numbers are more often delivered in volatile environments.

How did our dividend growth managers compare?

Let’s compare the end of Q1 (March 31st values – a week or so after the very bottom of the V):

One thing is for sure: we covered a lot of ground in 2020!

Dividend Growth Relative Performance

The summary stats here represent the averaged performance of the Large, Medium, and Small Dividend Growth Capitalizations we track, minus the averaged performance of the indexes of these three capitalizations. This tells us broadly if the Dividend Growth Strategy is still beating their indexed peers, thereby delivering consistent Alpha. The summary is an equally weighted distribution across all three capitalizations. The aggregate results are immediately below but keep scrolling to see the math for each of the three capitalizations.

One Last Reminder

Dividend Growth is evergreen; it is a beneficial core strategy for all seasons; “to have and to hold until death do us part!” Can you imagine getting a step-up in every security’s basis at death and then passing on a stream of inflation-beating, tax-advantaged, increasing dividend income to your children and grandchildren that is so precious, they would not think of selling it? Within the family, a Dividend Growth portfolio is very much like an exquisite commercial building, a family farm, or a business. The Dividend Growth strategy remains an actively managed process that outshines an indexed approach running across rolling decades of tracking.

The Rest of the Story

Here are the performance numbers we used to determine the average relative returns above. Remember the math using Large Cap in Q4 2020 as an example: Dividend Growth Manager performance of 11.29% minus Index performance 16.25% equals a negative relative return (or Alpha) of -4.96% for Q4.

Here are a few other Q4 measures for those that really want to dive into the details:

For greater context around these statistics please see our Q2 2020 Dividend Growth Summary 

Important note: Story does not utilize mutual funds or ETF’s. All Dividend Growth capitalizations are executed by using individual securities traded in a dedicated account titled in the name of the client or their IRA/401K/Roth/Trust account. This method is most frequently referred to as Separate Account investment management, but separate accounts are often confused with being a mutual fund. Our clients and our team maintain full tax and security selection control with the separate account format.

Please give us a call if you have questions or if you would like to further explore the specifics of this evergreen strategy!

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This report was prepared by Story Capital LLC, and reflects the current opinion of the firm, which may change without further notice. This report is for informational purposes only and is not intended to replace the advice of a qualified professional. Nothing contained herein should be considered as investment advice or a recommendation or solicitation for the purchase or sale of any security or other investment. Opinions contained herein should not be interpreted as a forecast of future events or a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's portfolio. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
Commentary regarding the returns for investment indices and categories do not reflect the performance of Story Capital LLC, or its clients. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.
Investors cannot invest directly in an index.
The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein.
Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.
This material is provided for informational purposes only. It is not an offer or solicitation to buy or sell any securities.
Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.
Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Story Capital LLC, is independently owned and operated. Story Capital, LLC is an Affiliate firm of NBW Insurance Group, a Member Firm of M Financial Group. File# 3421715.1

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