Dividend Select Commentary – 4Q19
As 2019 comes to a close, we look back on our Dividend Select strategy and we are happy with another year of strong results. The strategy outperformed the Russell 1000 Value® Index for the year and is outperforming the Russell 1000 Value Index on a long-term basis (net of fees) as well. Argent’s Dividend Select strategy has remained popular for those clients seeking either a more conservative, value-oriented approach to investing, or as an alternative to low yielding fixed-income investments. The strategy currently maintains a 2.9% yield, ahead of 1.9% for the S&P 500® Index and 2.5% for the Russell 1000 Value. Importantly, the stocks in our portfolio saw an average dividend increase of 8% in 2019 and we expect similar increases for 2020.
Looking ahead to a new year, it is interesting to see where Argent’s Change-BasedSM investment process is leading the strategy. Lately, our process has been highlighting the financial industry for potential, in particular, banking. At our core, Argent looks for companies that are undergoing change with the expectation that the successful realization of that change will drive revenue and earnings growth rates higher. Along with the positive change, our process looks for growth at attractive valuations. Currently, banks are trading at attractive valuations and many are flush with excess cash that they are returning to shareholders in the form of dividends and share repurchases. The industry is going through increased consolidation activity of similarly sized banks, referred to as “mergers of equals”. This increase in merger activity will allow the industry to continue to focus on increasing shareholder returns through significant expense reduction opportunities.
An example of a recent merger in the banking industry is one of holdings, Truist. Truist was formed from the merger of SunTrust Bank and BB&T Corporation. Argent held SunTrust Bank before the merger and we believe the merger will offer additional upside potential to our clients. The new bank operates 2,049 branches in 15 states and Washington, D.C. Truist believes its enhanced scale will allow it to focus on best of breed systems and processes in order to drive a competitive advantage. Additionally, the combined company will be able to leverage complementary businesses in an attempt to generate additional sales and expense reduction opportunities. (About the only thing we don’t like about the merger is the new name!)
A newer holding our process highlighted is Regions Financial, Inc. Regions provides consumer and commercial banking. wealth management and mortgage products and services. The company services customers across the South, Midwest and Texas and is headquartered in Birmingham, Alabama. Argent saw positive changes within Regions over the last several years as the company implemented cost controls to drive increased returns for its business. Regions is also trading at an attractive valuation, not to mention that the company has a strong balance sheet and continues to return cash to shareholders in the form of dividends and share repurchases. Currently, Regions has an attractive dividend yield of 3.7% and has grown its dividend by 31% annually over the past three years! The company’s commitment to keeping costs low, and its attractive valuation and high dividend yield make Regions a compelling addition to the Argent Dividend Select strategy.
As always, we appreciate your interest in Argent Capital Management. We have four very successful equity strategies – Large Cap U.S., Small Cap U.S., Dividend Select, and Mid Cap U.S. We are very proud of all, and if you have questions on any of these, or know others who might have an interest in our strategies and mailings, please call us.
Scott Harrison, CFA
PDF Version: Market Overview 4Q19
Performance results are net of fees. Past performance is no guarantee of future results. This is supplied as supplemental information to the composite disclosures presented later in this document. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. You should not assume that investments in any securities were or will be profitable. A list of stocks recommended by Argent in the previous year is available upon request. Views expressed herein represent the opinion of the portfolio manager as of the date above and are subject to change.