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Big Ideas Series WebinarRising Dividend Strategy: Generating Portfolio Income

June 15th, 2020

Securities offered through FSC Securities Corporation, member FINRA/SIPC. Advisory and insurance services offered through Stavis& Cohen Financial, a registered investment advisor not affiliated with FSC Securities Corporation. Cumberland Trust is not affiliated with FSC Securities Corporation.

Host

Kyle McCullyChief Business Development OfficerStavis & Cohen Financial

Speaker

Eddie Cohen, CFP®Co-Founder and Chief Investment OfficerStavis & Cohen Financial

Speaker

Jun Gu, CFAPortfolio ManagerStavis & Cohen Financial

Today’s Investment Challenges

How can I generate consistent income while maintaining purchasing power?

Ultra-Low Interest Rate Environment

1

Effects of Low Interest Rates on SavingsIncome earned on $100,000 in a savings account

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Income generated in a savings account

Income generated in a savings account

$4,510

$640

Source: FactSet, Federal Reserve System, J.P. Morgan Asset Management; Bankrate.com *Savings account is based on the national average annual percentage rate (APR) on money-market accounts from Bankrate.com from 2010 onward. Prior to 2010, money market yield is based on taxable money market funds return data from the Federal Reserve, Annual income is for illustrative purposes and is calculated based on the 6-month Treasury yield and money market yield on average during each year and $100,000 invested. Past performance is not indicative of comparable future results. Guide to the Markets – U.S. Data are as of December 31, 2019

Income needed to beat inflation

2

The Case for Dividends

Source: (1) CNBC, November 20, 2018. (2) Cerulli Associates. (3) Texas Property Code

Generate consistent and potentially growing income1

Have the potential to outpace inflation2

An important component of total return3

3

For illustration purpose Only. Not all companies pay dividends. Dividends are not guaranteed.

Power of Growing Dividends

4

Dividend Growth Has Outpaced Inflation

Administration• File trust tax returns• Track all expenditures and

additions to income and principal

• Issue statements to beneficiaries

• Keep accurate and detailed transactional records

• Issue notices required under state statute and trust to beneficiaries

• Keep beneficiaries informed of activity within trust

•

Distribution• Use discretionary power to

make distributions to beneficiaries

• Determine the amount and timing of a beneficiaries need for income and principal

• Assess beneficiaries income needs and assets to approve distributions

Investment• Determine appropriate asset

allocation• Invest assets in a prudent

manner aligned with expected distributions

Source: Bob Shiller, http://www.econ.yale.edu/~shiller/data.htm. Data from 12/31/1957 to 12/31/1957 to 12/31/2019. CPI: Consumer Price Index. Past performance is not indicative of future results. You cannot invest directly in an index.

5

Consistent Dividend Growth, Even Through Recessions

Administration• File trust tax returns• Track all expenditures and

additions to income and principal

• Issue statements to beneficiaries

• Keep accurate and detailed transactional records

• Issue notices required under state statute and trust to beneficiaries

• Keep beneficiaries informed of activity within trust

•

Distribution• Use discretionary power to

make distributions to beneficiaries

• Determine the amount and timing of a beneficiaries need for income and principal

• Assess beneficiaries income needs and assets to approve distributions

Investment• Determine appropriate asset

allocation• Invest assets in a prudent

manner aligned with expected distributions

Dividends continued to go up in ten of the last eleven recessions. Data as of Jan 2020. Source: WisdomTree

6

Recession

Dividend Contribution to Total Return

•

Distribution• Use discretionary power to

make distributions to beneficiaries

• Determine the amount and timing of a beneficiaries need for income and principal

• Assess beneficiaries income needs and assets to approve distributions

Investment• Determine appropriate asset

allocation• Invest assets in a prudent

manner aligned with expected distributions

Source: Strategas Research Partners

Dividends are nearly 60% of total return over the long term

Dividend Contribution to Total Return

Price Pct. Change

Dividend Contribution Total Return Dividends Pct. Of

TRAvg. Payout

Ratio1930s -41.9% 56.0% 14.1% 100 90.11940s 34.5% 100.1% 134.6% 74.4 59.41950s 257.3% 180.3% 437.7% 41.2 54.61960s 53.7% 54.2% 107.9% 50.2 56.01970s 17.2% 59.1% 76.4% 77.4 45.51980s 227.4% 143.1% 370.5% 38.6 48.61990s 315.7% 115.7% 431.5% 26.8 47.62000s -24.1% 15.0% -9.1% 100 35.32010s 189.7% 66.9% 256.7% 26.1 35.2Average 114.4% 87.8% 202.2% 59.4% 52.57

Rising Dividend Portfolio

Investment Objectives

The primary objective of the portfolio is to

generate a current and growing stream of

income (initially around 3.5% annually) with

majority of assets invested in a stock portfolio

of high-quality companies with a history of

consistent and/or growing dividends.

~3.5%

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Investment Approach

A demonstrated history of consistent and /or growing dividends.

Strong Balance Sheet and cash flows, Generally with a Morningstar Financial health Rating of A or B.

Strong competitive advantages or “Wide Moat”. This makes it more difficult for a company’s competitors to enter the marketplace.

A diversified stock portfolio typically investing in 30 to 40 high-quality companies with:

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Screening Process

700 – 1000 Market Cap > $5 B & Yield > 3.5%

150 – 300 Dividend Growth ≥ 1%

50 – 75Morningstar FinancialHealth Grade (A,B)

40-50 No dividend cuts in 2 of the past 20

years

~25

1500 – 1800 Market Cap > $5 B & Yield ≥ 2%

200 – 400Dividend Growth ≥ 10%

75 - 100Morningstar FinancialHealth Grade (A,B)

40 – 50 Morningstar Top Pick & Research from Strategas

~25

Dividend Payers Dividend Growers

We’ve narrowed our portfolio down to 30-40 stocks, from a

universe of about 2,000 stocks.

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Sell Discipline

Fundamental changes that are expected to impact companies’

ability to pay and/or increase dividends going forward.

Changes in companies’ dividend policies

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Portfolio Characteristics

5%Individual Stock Cap

"The companies listed here are examples only. As such, this is not a recommendation of any of the stock of these companies. The actual composition of the portfolio will be different and vary over time. Investing involve risk, including the potential loss of principal. No investment strategy can guarantee an income or profit nor protect against a loss."

Examples of companies in sectors*

Consumer Staples

Consumer Discretionary

Telecom30-40Stocks Diversified

Across Sectors

20%Individual Sector Cap

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Rising Dividend Portfolio Summary

A diversified portfolio with high quality companies with a goal of providing:

Competitive current income

Potential for: Consistent income regardless of market movementGrowing income to outpace inflationCapital appreciation over time

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Eddie Cohen, CFP®Co-Founder and

Chief Investment Officer

Conversation with

Eddie & Jun

Jun Gu, CFAPortfolio Manager

Q&A

Thank you! 1330 Post Oak Boulevard, Suite 2190 Houston, TX 77056www.stavisandcohen.com(713) 275-7750

Securities offered through FSC Securities Corporation, member FINRA/SIPC. Advisory and insurance services offered through Stavis& Cohen Financial, a registered investment advisor not affiliated with FSC Securities Corporation. Cumberland Trust is not affiliated with FSC Securities Corporations.