Dividend Select Commentary – 2Q20
With the second quarter officially in the books, we are pleased with the results of the Argent Dividend Select strategy. The portfolio rebounded sharply, gaining 20% (net of fees) during the second quarter, far outpacing the 14% rebound in the Russell 1000 Value® Index. Its relative outperformance over longer time horizons is likewise impressive, beating the index over the trailing one, three, five, ten, and fifteen-year periods (net of fees). Argent Dividend Select is a particularly popular investment strategy for clients seeking a more conservative, value oriented approach to investing and as an alternative to low interest fixed-income investments. At quarter end, the Argent Dividend Select dividend yield was 3.2%, which compares somewhat stunningly to the 10-year Treasury yield of 0.6%.
One area that has provided stability to our portfolio has been the Consumer Staples sector. This sector includes manufacturers and distributors of food and beverages, and examples include PepsiCo, General Mills and Proctor & Gamble. As might be expected in a pandemic environment, people are spending more than ever on staples such as groceries and household cleaners.
Nonetheless, one exception to the recent success in the Consumer Staples sector is food distribution. A near complete shutdown in dining-out activity resulted in steep declines in stock prices for companies supplying the restaurant industry. When investors abandon a historically good company, Argent gets interested–seeing opportunity within this particular industry we recently added Sysco Corporation, a leading restaurant distributor. Sysco markets and distributes food, kitchen equipment and tabletop items to restaurants, healthcare and educational facilities as well as hospitality businesses. Sysco operates approximately 330 distribution facilities worldwide and provides services in over 90 countries.
Although the company’s stock has been negatively impacted by near-term declines in restaurant sales because of the coronavirus, Sysco has a history of delivering consistent revenue and earnings growth. The chart provided by OpenTable, an online restaurant reservation company, demonstrates that a recovery in the restaurant industry is slowly taking shape as more restaurants are open and taking reservations. While the impact of a potential second wave of the virus and the resulting pace and speed of re-openings remain a concern, longer-term we believe Sysco will benefit from the improving industry backdrop. In addition, Sysco has demonstrated good management during the crisis–expanding supply features for restaurants in the carryout and delivery business, and expanding the marketing of cleaning materials.
Importantly, Sysco has paid a dividend in every quarter since its founding as a public company in 1970, and from fiscal 2015-2019–the company increased its dividend by 6% compounded annually. Currently, the company has an attractive dividend yield above 3% and remains committed to growing the dividend over the long-term. In addition, the company’s new CEO has a focus on driving greater efficiencies across the organization to further bolster the company’s industry -leading position.
As always, we appreciate your interest in Argent Capital Management and think it is a particularly great time for long-term investors to consider strategies investing in high dividend-paying companies. Overall, we have four successful equity strategies– Large Cap U.S., Small Cap U.S., Dividend Select and Mid Cap U.S. 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 2Q20
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.