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The Dividend Growth Strategy: Maintaining and Growing Income in Recessions

Jon Christiansen, CFA
December 15, 2020


The Dividend Growth strategy is a high-quality equity portfolio. As the firm’s flagship portfolio, it represents a pure implementation of the company investment philosophy. This philosophy is based on over 50 years of implementation and is grounded in the belief that more consistent, predictable companies can be effectively identified by their dividend history. Combining a high-quality orientation with a perspective that the investment environment is uncertain and constantly changing leads us to believe that protecting capital during adverse market conditions is a highly effective way to add value. At the same time, quality companies with consistent businesses tend to offer above-average visibility on achievement of fundamental progress and empower upside participation when markets are good. The compounding effects of dividends and earnings growth, combined with mitigated risk, can lead to long-term outperformance over a full market cycle. Dividends hold additional appeal by providing current income to finance client withdrawal needs through both negative and positive equity return periods while preserving invested capital and reducing the disruptive negative impact of drawdowns. The goal of our investment process is to identify high-quality companies and invest in them when the risk/reward relationship is positively skewed. This often occurs when short-term business conditions deteriorate or other market circumstances compress valuation.

The process begins with a structurally advantaged universe from a quality standpoint. This enhanced opportunity set is based on companies with a consistent dividend payment history, and the universe is further refined and improved upon by extensive fundamental research conducted by our highly  experienced analyst team. The end result is a diversified yet focused portfolio of 35 to 40 of our best ideas. The higher certainty and predictability of the companies within the portfolio, combined with valuation sensitivity, help narrow the range of potential outcomes and afford clients a smoother ride with less volatility. This year has been one of extreme volatility on several fronts. Yet, we have been encouraged by the commitment to dividends clearly demonstrated by portfolio company leaderships. In 2020, the Dividend Growth strategy experienced no cuts or omissions, and the average holding is paying a higher dividend than last year, which is largely consistent with our experience in other periods of financial stress. In fact, our portfolio has only encountered dividend reductions twice over the past dozen years despite two deep recessions. The dividend integrity displayed by our portfolio companies contrasts to what’s taking place broadly in this destabilized financial environment, as nearly 70 S&P 500 companies have reduced or suspended dividend payments just since March, and we fear there may be more to come.

Source: Standard and Poor's, Goldman Sachs Global Investment Research

Each investment and economic cycle is different, and the recent downturn was both swift and severe. One differentiating feature as it relates to dividend policy was the large number of companies that suspended or omitted dividend payments. In prior cycles, the tendency was for corporations to reduce dividend payouts in periods of economic or company-specific stress, but this time, we saw more companies elect to pay no dividends at all. It remains to be seen how many of these companies will reinstate their dividends.

With equity dividend yields now exceeding bond yields by the widest margin in a half century (and the Dividend Growth strategy dividend yield exceeding that of the S&P 500 by 50%), the opportunity for relative income generation through equity ownership is at multi-decade highs for those investors who own stocks of companies that have been able to maintain their payouts.

Source: Robert Shiler, Goldman Sachs Global Investment Research 

We believe the Dividend Growth strategy’s relative preservation of current income for clients reflects one key aspect of our fundamental research. Through our commitment to the implementation framework and quality emphasis, we have been able to avoid owning companies that do not have the propensity to maintain and grow dividends through inevitably recurring adverse economic periods.


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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