This dividend stock fund is beating the market. Here’s his strategy
Investors have been looking for income lately to offset some of the stock market’s volatility, but it’s a long-held strategy that’s paying off for Integrity Viking Funds. The company’s Integrity Dividend Harvest Fund ended 2022 down just 1.45%, while the broader market experienced its worst year since 2008. The S&P 500 ended down almost 20%. So far in 2023, the Integrity Dividend is up more than 5%, while the S&P is up just over 1%. At the same time, investors in the Integrity Dividend Harvest Fund receive income. Its yield is about 2.70%. The fund, which has an adjusted expense ratio of 0.70%, was launched in 2012 in response to financial advisors’ demand for a high-quality, low-volatility equity product, said Mike Morey, chief investment officer at Integrity Viking Funds and one of the Integrity Dividend’s portfolio managers Harvest Fund. Today, the fund has approximately $308 million in assets under management and has a 4-star rating from Morningstar. It rounds out Integrity’s income offering, which also includes municipal, high-yield, and government income funds. IDHIX 1Y Mountain Integrity Dividend Harvest I outperformed the S&P 500 in 2022. The team maintains its investment style regardless of market conditions, he said. “You go through periods where growth becomes extremely sexy and everyone is chasing it,” Morey said. “We believe this is simply not the most appropriate investment style. We believe that owning quality companies and sticking with them over the long term will bring longer-term benefits.” The result has been a fund with steadily growing earnings and annual dividend increases, and superior risk-adjusted returns, he said. The fund’s three-year annualized return is 5.29%. The Integrity Dividend Harvest Fund has a mix of dividend stocks from all different sectors of the S&P 500, but its overweight positioning in sectors like utilities and consumer staples has helped it stand out over the past year, Morey said. Top Picks Morey believes that utilities and consumer staples and healthcare will continue to do well in a slowing or recessionary economy. The company is also finding opportunities in finance and technology. “An exit from the recession would be negative for the group, but when you find quality companies in those sectors, you start to get a pretty attractive valuation,” Morey said. The Fund’s top position as of September 30 was biopharmaceutical company AbbVie. The stock, which is up more than 19% over the past year, has a dividend yield of 3.65%. It has contributed significantly to the fund’s performance and has been able to grow its dividend for more than 50 years, Morey said. Biosimilar copies of its drug Humira are slated to launch this year, but AbbVie is adjusting by diversifying its pipeline, he said. Additionally, AbbVie is expanding its revenue streams with immunology drugs Rinvoq and Skyrizi, and through its 2020 acquisition of Allergan upside not just from earnings growth,” Morey said. The fund’s second-biggest holding is Broadcom, which fell nearly 16% in 2022 and has a dividend yield of 3.09%. The company has transitioned from a true growth stock to a more hybrid company, Morey believes. “They have a strong growth profile but are trading at a very attractive valuation,” he said. Broadcom has also increased its dividend for 11 straight years, he added. Despite some regulatory “hiccups” in Europe, Morey believes the chipmaker’s proposed acquisition of VMWare will go through. Once that happens, more than 50% of Broadcom’s revenue will come from recurring software sales, he said. That will make Broadcom’s free cash flow more visible and improve its ability to pay a dividend, he said. Energy has also played a role in the fund’s performance and has the potential to continue to do well this year, Morey said. Exxon Mobil, the fifth-largest holding with 3.07% of the portfolio, has returned a whopping 80% over the past year and has a dividend yield of 3.37%. The largest US oil company by market value has continued an active investment program during the oil downturn over the past five years that is beginning to bear fruit, Morey said. “They’ve delivered strong free cash flow growth and deleveraging, and I think we’re likely to see more dividend increases,” he said. “They are arguably one of the most diverse energy companies in the world, with revenues across the energy sector value chain as well as chemicals.” He also likes Diamondback Energy, which isn’t among the fund’s top 10 holdings. The energy company accounts for 1.89% of the portfolio’s net assets and has a dividend yield of 2.13%. Diamondback Energy recently acquired Lario Permian, a subsidiary of Lario Oil & Gas, which has expanded its presence in the Permian Basin and increased inventory depth, Morey said. He also likes the free cash flow profile. Utilities attractive Utilities are also attractive right now because of their low beta and expectations that they won’t have a problem with earnings downturns that other sectors will face this year, said Shannon Radke, the fund’s senior portfolio manager. “Utilities have minimal exposure to the US or the world economy simply because of the essential service product they deliver,” he said. “That will support the stability of profits.” Decarbonization at utilities is driving higher capital spending and growth across the sector, he added. One of those standout names, according to Radke, is American Electric Power, which has a yield of 3.38%. The company has increased its capital expenditures and management has a record of beating its own forecasts as well as analysts’ consensus earnings estimates, he said. “They point to long-term annual earnings growth of 6% to 7%, along with dividends growing in step with their earnings,” Radke said.
https://www.cnbc.com/2023/01/10/the-strategy-behind-this-dividend-stock-that-is-beating-the-market.html This dividend stock fund is beating the market. Here’s his strategy
