The SGDI Strategy invests primarily in larger capitalization, global, dividend paying, equity securities (including securities of unit trusts, real estate investment trusts and depository receipts), with the intent of providing:
- a consistent and above market average dividend income yield to the portfolio;
- growth in the absolute level of dividend income generated by the portfolio through time; and
- moderate long-term capital appreciation of the portfolio.
These investment objectives are stated in order of priority. Importantly, SciVest believes that by focusing on dividend paying companies which are expected to grow their dividends through time will ultimately result in long-term capital appreciation of the investment portfolio. That is, long-term capital appreciation of the portfolio is a consequence of focusing on attractive growth of dividend payment investments.
Firstly, to ensure an above average dividend income yield, the SGDI Strategy holds a diversified investment portfolio of relatively high yielding, high quality, large capitalization, Global, dividend paying common equities (and equivalents) which across the entire portfolio are expected to produce an average gross current dividend yield of 3.0% to 4.5% per annum. Secondly, the SGDI Strategy focuses on and invests in those high quality, Global, dividend paying equities that SciVest expects to materially grow their dividends in the future, generally representing dividend growth in excess of 5% per annum at the portfolio level over an economic cycle. Thirdly, SciVest believes that a focus on growing dividend income will in the long-term produce higher investment capital because as dividends grow ultimately price should increase in order to maintain an approximately consistent current income yield (Current Yield = Dividend/Price), thereby generating long-term capital appreciation. SciVest also believes that this capital appreciation can be further enhanced by tilting the portfolio towards dividend growth stocks of cheaper, higher quality, faster growing companies and by monitoring such holdings for adverse changes in fundamentals.
When making equity purchase decisions for the SGDI Strategy, SciVest generally considers:
- dividend payment history;
- dividend payment future expectations regarding dividend sustainability and growth;
- applicable dividend withholding taxes;
- earnings, cash-flows, dividends and dividend pay-out ratios, both historical and forward looking, as they relate to a company’s ability to continue to pay and grow its dividends;
- stock valuation metrics relative to historical norms, industry peers and company growth, with a strong preference for cheap relative to expensive;
- stock valuation metric and stock price trends, in relation to dividend payments, to aid in determining best position entry points for the long-term;
- the issuer’s long-term business model and overall “story”;
- a position’s relative attractiveness compared to the portfolio’s other existing holdings and potential holdings; and
- the overall portfolio-level diversification and risk implications of adding any specific company and its stock to the portfolio.
Securities held within a SGDI Strategy investment portfolio are generally trimmed or liquidated if and when:
- dividend sustainability and/or growth is deemed to be in doubt;
- a dividend decrease is announced or actually occurs;
- stock price is deemed to have risen too much relative to dividend payout, stock valuation metrics and/or company prospects;
- a position weight exceeds 5.0% of the net asset value of the portfolio or the position weight becomes larger than desired given the risk of the position; and/or
there exists a significantly better investment opportunity for the portfolio.
Since the primary investment objective of the SGDI Strategy is to provide a consistent and growing dividend income stream to its investors, SGDI Strategy portfolios are almost always near fully invested (after the initial account opening investment period) to maintain their dividend income stream – regardless of equity market conditions. However, the SGDI Strategy may hold up to 25% in net cash depending upon the availability of investment opportunities or in extreme adverse market environments.