Owning income-producing securities is an important and differentiating element of working with Crawford Investment Counsel. Because the firm only invests in income-producing securities, we are able to meet or come close to meeting most clients’ spending needs from portfolio income alone. And, because we prefer and specialize in investing in companies that raise their dividends year after year, we want our clients to experience rising annual income, which, in turn, enables the current spend rate to keep up with or exceed inflation, enhancing purchasing power in the process. Our research efforts are exclusively focused on dividend-paying stocks and high-quality, income-producing bonds. The use of these types of securities aligns us with the needs of most of our investors who either have current income needs or who may rely on the investment portfolio to support future spending. To best seek to meet our clients’ objectives, an appropriate mix of our strategies is chosen and custom-blended to honor income needs and at the same time reflecting preservation of capital and total investment return (growth).
It is important to distinguish among income, yield, and total investment return. Portfolio income is simply the dollar amount of stock dividends and bond interest payments expected to be received over the next 12 months. When this income figure is expressed as a percentage of the portfolio market value, it provides the yield (% rate). The income is what can be spent before invading principal, and it is a component of total investment return. The total investment return combines portfolio income plus or minus any capital appreciation or depreciation. The income is the stable component of this equation, so we want to emphasize it to the extent possible.
We invest for total investment return, since that is the cumulative client experience we are seeking to optimize, but we want to achieve this by owning individual securities with income tailwind. We know the income will be positive in each and every year, but, depending on market conditions, the securities will either appreciate or depreciate (bonds to a much lesser degree than stocks). We also know that any income received helps meet spending requirements and reduces the amount of principal that must be invaded. This becomes particularly critical in periods of market stress.
Not only do we favor income, but since 1980, our research efforts have had a dual focus on stocks that regularly increase their dividends and high-quality bonds with strong credit quality. High-quality companies can be more predictable and consistent, typically producing rising earnings and cash flow each year. This is what enables them to pay and raise dividends each year, and a history of rising annual dividends is a very good place to identify stocks that can continue to pay and increase dividends in the future. This rising stream of income is a byproduct of the high-quality companies that comprise our portfolios. The rising dividend pattern of the portfolio means that income can actually grow in real terms (adjusted for inflation). Importantly, this also can help preserve capital because income generates a positive component of total return each year.
We have always believed that a rising stream of income can help produce a consistently rising total investment return over time. Income and growth of income are important components of the Crawford investment approach.
By aligning our firm’s focus with the primary objectives of our clientele, we improve our clients’ chances for success and are better able to meet goals and exceed expectations. Not only do income and growth of income help satisfy spending needs, but their aspects actually help lead to lower risk portfolios and are important components of total investment return.
For additional perspective on how rising dividends help lead to attractive total investment return, please refer to the article “Benefits of Working with CIC - Total Investment Return”.
Crawford Investment Counsel Inc.(“Crawford”) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Crawford including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request. Past performance is not indicative of future results. All investments carry a certain degree of risk of loss, and there is no assurance that an investment will provide positive performance over any period of time. This material is distributed for informational purposes only. The statements contained herein reflect opinions, estimates and projections of Crawford as of the date hereof, and are subject to change without notice. Forecasts, estimates, and certain information contained in this commentary are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Any projections herein are provided by Crawford as an indicator of the direction Crawford’s professional staff believes the markets will move, but Crawford makes no representation such projections will come to pass. Crawford makes every effort to ensure the contents have been compiled or derived from sources believed reliable, and contain information and opinions that are accurate and complete; however, Crawford makes no representation or warranty, express or implied, in respect thereof; takes no responsibility for any errors that may be contained herein or omissions; and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Crawford reserves the right to modify its current investment strategies and techniques based on changing market dynamics or individual portfolio needs.
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