Active investment management

Income Investing
Portfolios designed for consistent income

Dividend-based Income Investing

Tango Capital Management’s approach to income investing – when clients need to make steady withdrawals from their portfolio to meet expenses – relies heavily on dividend-paying equities.

We see a number of advantages to this approach:

  • Dividend paying equities have no maturity. If the dividend is discontinued or becomes uncompetitive, we have the opportunity to sell the position and reinvest.
  • Unlike bonds, where the value at maturity is set, equities have the potential to increase in value, adding appreciation to the portfolio.
  • Due to market inefficiencies, opportunities may exist to purchase dividend paying stocks at a discount, increasing the dividend rate of return.

Tango utilizes an active approach to income investing, similar to that of its growth investing approach. It starts with identifying top performing sectors of the market. Within those sectors, we look for the best dividend paying companies. These are bullish companies with strong performance and risk ratings, consistent dividend policies, and good valuations.

Quality dividend paying companies are held long term unless we see negative changes in the firm’s dividend policy or the stock’s value begins to suffer. In situations where the valuation appears to reflect sector rotation rather than a decrease in the quality of the company or dividend, the stock may continue to be held even though this creates a loss in the portfolio.

While there may be circumstances, such as convertible bonds issues - where bonds offer both income and the potential for appreciation - Tango typically minimizes bond positions in its income portfolios.

Our Concerns with Bonds

Tango Capital Management portfolios tend to minimize bond investments, particularly in the current low-rate environment. We believe better opportunities exist to build income portfolios.

Rising Interest Rate Environments Lower Bond Values

The value of bonds sold before maturity will vary based on interest rate, time to maturity and bond quality. Bonds are most likely to increase in value in declining interest rate environments. When interest rates rise, bonds typically decline in value.

Bond Risks Include Opportunity Risk

Given substantial opportunity to invest for income through dividend paying stocks, Tango tends to avoid bond investments where the potential for increasing interest rates can reduce the present value of a bond and, without taking a loss by selling before maturity, trap the investor in below market returns.