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.