Equity Income - Davidson Investment AdvisorsVideo
Equity Income Strategy
Philosophy/Mission Statement
The Equity Income strategy is designed to provide outsized returns with below average risk. Our philosophy of investing dictates that we seek out companies with strong balance sheets who have an attractive return on equity relative to their cost of equity capital. Also of great importance is to identify companies who can provide a meaningful and sustainable dividend yield for their shareholders. The mission is to create a portfolio of 30 to 40 strategically advantaged companies, each position size determined by its expected marginal impact on risk and return given the portfolio's current opportunity set.
Process
The Equity Income process relies upon the identification of companies that possess dividend power demonstrated over time. Starting with a universe of stocks with no less than five days liquidity, based on average daily trading volume, the Equity Income due diligence process involves a combination of quantitative, qualitative and fundamental analyses, seeking to uncover an optimal mix of proven companies who have exhibited consistency in balance sheet strength and dividend growth. External and internal sources of research are leveraged including (but not limited to) company visits, industry journals, conferences, expert sell-side analysts and specialty consultants. The valuation framework incorporates a multivariate appraisal process that allows for stress testing of assumptions and the exploration of potential scenarios/outcomes. Ample "margin of safety" is paramount to the valuation matrix. Throughout the process, ideas are vetted with the entire investment team and summarized in a brief two page investment thesis. The Equity Income strategy will sell or trim a position if a stock becomes fully valued, a better alternative becomes available, fundamentals deteriorate, or for purposes of portfolio construction and risk management.
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