CNBC Anchor, Carl Quintanilla, interviews David Spika in a four-minute segment. To view the segment, click here.

To view the two -minute segment, click here.

This video is not available online.

To view the three-minute segment, click here.

Westwood Holdings Group, Inc. (NYSE: WHG) today announced the expansion of its range of investment strategies with the addition of Global and Emerging Markets equity strategies. Patricia Perez-Coutts, CFA, Thomas Pinto-Basto, CFA, Alice Popescu, CFA, Richard Dolhun and Martin Pradier, CFA will be joining Westwood to lead the management of these new strategies for a newly established affiliate, Westwood International Advisors Inc., which will be based in Toronto.

Brian Casey, Westwood’s President & CEO, commented, “We are very excited that this extremely talented team of investment professionals that has developed an impressive track record of successfully managing global and emerging markets portfolios will be joining Westwood. In response to increasing demand by clients and consultants for non-U.S. investment strategies, we have made it a strategic priority to expand our research capabilities and product offerings, with a focus on global and emerging markets. The addition of these talented professionals accomplishes that objective and will present new growth opportunities for Westwood. We believe our clients will greatly benefit from our expanded investment management capabilities.”

The new team, whose bios appear below, will continue managing Emerging Markets and Global Equity strategies.

Patricia Perez-Coutts, CFA, Senior Vice President and Portfolio Manager – Patricia will lead the Emerging Markets strategy and co-lead the Global Equity strategy. Before joining Westwood in 2012, Patricia managed emerging markets portfolios for eleven years for a Canadian investment management firm. Prior to 2001, she served as Vice President and Portfolio Manager for another Canadian investment management firm, Vice President of Research for a Canadian private merchant bank and Economist for Peru’s Institute of Foreign Trade. Patricia earned an Honours BA in Economics from Pontificia Universidad Catolica del Peru and a BA in Mathematics for Commerce at York University. She is a CFA charterholder and a member of the CFA Institute.

Thomas Pinto-Basto, CFA, Portfolio Manager – Thomas will lead the Global Equity strategy and co-lead the Emerging Markets strategy. Before joining Westwood in 2012, he served on the Global Equity team for over six years for a Canadian investment management firm. Prior to 2005, he served as a corporate strategy consultant with Deloitte Consulting in Canada and Hong Kong and as a Global Analyst for both fixed income and equities with Altamira Management. Thomas earned a BA in Economics from Carleton University. He is a CFA charterholder and a member of the CFA Institute.

Alice Popescu, CFA, CMT, DMS, Associate Portfolio Manager – Alice will serve on both the Emerging Markets and Global Equity strategies. Before joining Westwood in 2012, Alice served on the Global Equity team and researched global commodity derivatives markets for a Canadian investment management firm since 2003. Alice earned a BS in Finance from New York University – Stern School of Business. She is a CFA charterholder, a member of the CFA Institute, a Certified Market Technician and a Derivatives Market Specialist.

Richard Dolhun, MBA, Global Equity Analyst – Richard will serve on both the Emerging Markets and Global Equity strategies. Before joining Westwood in 2012, Richard served on the Global Equity team beginning in 2008 and was responsible for Japanese business development efforts from 2002 to 2008 for a Canadian investment management firm. Prior to 2002, he served as financial controller for the Asian subsidiary of a large Canadian consumer staples company. Richard earned a BA and MBA from the University of Manitoba.

Martin Pradier, CFA, MBA, Global Equity Analyst – Martin will serve on both the Emerging Markets and Global Equity strategies. Before joining Westwood in 2012, Martin served on the Emerging Markets and Global Equity teams for a Canadian investment management firm since 2010. Prior to 2010, he served as an analyst for RBC Royal Bank for over six years analyzing new business initiatives. Martin began his investment career in 1993 in Argentina serving as a senior equity research analyst for seven years. Martin earned a BA in Economics and a BA in Business Administration from the Universidad de Buenos Aires and an MBA from Queen’s University. He is a CFA charterholder and a member of the CFA Institute.

Warren International, a professional asset management recruiting firm, acted as an advisor to Westwood.

About Westwood

Westwood Holdings Group, Inc. manages investment assets and provides services for its clients through two subsidiaries, Westwood Management Corp. and Westwood Trust. Westwood Management Corp. is a registered investment advisor and provides investment advisory services to corporate pension funds, public retirement plans, endowments, foundations, the Westwood FundsTM, other mutual funds and clients of Westwood Trust. Westwood Trust provides trust services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Westwood Holdings Group, Inc. trades on the New York Stock Exchange under the symbol “WHG.”

For more information on Westwood, please visit www.westwoodgroup.com.

Note on Forward-looking Statements

Statements in this press release that are not purely historical facts, including statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “target,” “designed,” “on track,” “comfortable with,” “optimistic” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation: the requirement under applicable law that the investment team discussed above may not depart their current employer until notice periods have expired; our ability to identify and successfully market services that appeal to our customers; the significant concentration of our revenues in four of our customers; our relationships with investment consulting firms; our relationships with current and potential customers; our ability to retain qualified personnel; our ability to successfully develop and market new asset classes; our ability to maintain our fee structure in light of competitive fee pressures; competition in the marketplace; downturns in the financial markets; new legislation adversely affecting the financial services industries; interest rates; changes in our effective tax rate; our ability to maintain an effective system of internal controls; and the other risks detailed from time to time in Westwood’s SEC filings, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2011. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, Westwood is not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

SOURCE: Westwood Holdings Group, Inc.
# # #
(WHG-G)

Investment Management Contact:
David Spika, Senior Vice President and Senior Portfolio Specialist, Westwood Holdings Group, Inc.
(214) 756-6360, dspika@westwoodgroup.com

Media Contact:
Tucker Hewes, Hewes Communications, Inc.
(212) 207-9451, tucker@hewescomm.com

Untitled from westwoodgroup on Vimeo.

March 2012

Print PDF Version

“It isn’t what we don’t know that gets us in trouble. It’s what we do know that just ain’t so.”

– Mark Twain (1835-1910)        

Low bond yields and short-term interest rates near 0% are bringing stock dividends back as a hot topic in the media.  The constant chatter will invariably include some half-truths, misunderstandings, or just plain bad information.  Below, we attempt to clarify between fact and fiction. 

10 Misunderstood Facts About Dividend Paying Stocks:

1)     Technology companies can find better things to do with their cash than pay dividends. 

 While this may have been true in the past, corporate cash, in aggregate, is now near historical highs at 13.4% of total assets, or $3.6 trillion.  Technology companies in the S&P 500 alone have cash of nearly $460 billion.  With only $160 billion of outstanding debt (and at low interest rates), there is a net $300 billion earning nothing, and losing money when inflation in accounted for (see our piece from February 2012 entitled “For Investors, Time to Get Real” for more on negative real rates).  The reality is that technology companies have more than enough cash to pursue market share expansion through new product development and introduction and geographic market expansion, while also substantially increasing dividend payouts to shareholders.

 2)     Tax rates on dividends are at a very low 15%, so naturally, payout ratios have risen over the last ten years. 

 False:  Payout ratios (The percent of earnings paid as dividends) are near an all-time low of 27%  and can rise sharply while still being only “in line” with the fifty year average of 46%.  To bring payout ratios in line with their historical average, companies would need to pay out an additional $170 billion in dividends.  S&P 500 companies’ share buyback levels peaked in 2007 at nearly $600 billion, and have totaled $404 billion over the last 12 months, compared to $240 billion paid in dividends.  With dividends expected to rise to $275 billion in 2012, companies will still have a lot of cash sloshing around to fund both dividends and share buybacks.

 3)     A hike in the tax rate for dividends will hurt demand for dividend stocks. 

 Unknown, but historically false:  For now, an increase would only affect those making more than $250,000 a year.   More importantly, looking at past data, there has been very little correlation between the tax rate on dividends and the corporate payout ratio.  From 1954 to 1984, dividends were taxed at the owner’s personal rate, with a nominal $50-100 dividend exemption.  From 1985 to 2002, dividends were fully taxable at personal tax rates.  During this long fully-taxed time period, the payout ratio moved up and down between the healthy payout ratios of 42% and 64%.   With the reduction in dividend tax rates to 15% in 2002, total dividends paid out over the next few years did double, but earnings on the S&P 500 doubled also.  The payout ratio in this low 15% tax rate environment actually went down, from 41% in 2001 to 27% today, having last been over 37% in 2001.  Dividend tax rates could increase, but investor need for income, large cash balances on corporate balance sheets, and the ambiguous benefit that share buybacks give to investors should keep dividend payouts rising, despite potentially higher tax rates.

  4)     The lower volatility of dividend payers leads to lower returns over time. 

False:  The lower price volatility of dividend payers does not lessen their overall return.  In fact, since 1969, the highest dividend quintile group of the largest 1,000 companies by market capitalization generated nearly the highest stock returns, with the lowest standard deviation.  Conversely, quintile 5, the lowest dividend payers, had the lowest stock returns with the highest standard deviation.

5)     Dividends won’t save you in a bad market. 

False:  Dividend stocks have outperformed the market in good times, but they have also fared well in tough markets also.  In challenging market years such as 2008, the dividend payers in the S&P 500 still declined in value, but outperformed the non-dividend payers by 440 basis points.  The same result was also seen in 2002, with dividend outperformance of 530 basis points.

  6)     Dividend paying stocks underperform in a rising interest rate environment. 

False:  Dividend growers have a historically performed well when inflation and interest rates rise.  Since 1972, during periods when the Fed has tightened monetary policy, dividends outpaced their non-dividend counterparts, gaining 2.2% vs. 1.8% annually for non-dividend payers.

Source: Ned Davis Research. Data 1972 – 1/2011

7)     Dividend stocks will underperform in a flat or easing rate environment.

False: During periods when monetary policy was neutral or easing, dividend payers gained 12.3%, vs. 6.2% in neutral periods, and gained 10.0% vs. -2.5% in easing markets. See chart above. 

 8)     Paying dividends limits the available capital for managers to invest in their businesses, which harms the company in the long run. 

False:  The payment of dividends by high return companies does not hurt business prospects over time, and it focuses management on only the best new growth opportunities for their business in the future.  The outperformance of dividend growers over time is a testament to this.  The “Dividend Aristocrats”, a group of 51 companies that have grown dividend payouts each year for at least 25 years, includes some of the best companies of the last 100 years.  In addition to consistently growing their dividends, these companies have continually reinvested in their businesses and grown their companies to be the dominant players in their industries.   The group of Dividend Aristocrats, including such notable companies as WalMart, Walgreen’s, Ecolab, and Abbott Labs, has outperformed the S&P 500 since 1999 by an average of 600 basis points a year.

 9)     Dividends are a small part of historical total return. 

False:  Dividend payments have contributed about 40% of the market’s annualized return since 1936.   Over that time, the stock market has grown an average of 10.2% a year.  Capital gains amounted to 6.2%, and dividends paid were 4.0%, which is a very large share of overall return over time.  This period includes the very low dividend yield years of the past 15 years.

 10)     Stick with only the highest dividend payers for a better return over time. 

False:  Investing in great companies whose businesses are performing well and growing, have solid balance sheets, and a sustainable long term dividend is the best strategy for long run stock performance. In fact, the highest yielding stocks are not necessarily the best performers in the S&P 500 over time.  While some stocks pay a high dividend yield because they generate a lot of cash and have limited growth prospects, most stocks that end up at the top of this list are there for a reason.  Generally, the highest yielding stocks are there because investors question (by forcing the price lower and, thus, the yield higher) the long term prospects of the business, and/or whether the payout can continue.  Current day examples include Avon Products, with its high 5.0% yield.  While Avon may be a well-known business, the company carries a lot of debt, and many speculate the dividend will need to be cut to manage this large debt load.  Or, consider the 8.5% yield of Pitney Bowes.  While the absolute yield is attractive, the level of EPS (earnings per share) is flat with 1999 and the stock is at a 20-year low.  Again, investors question the long term health of the postage meter market, and Pitney Bowes’ ability to fund its dividend going forward.  

Importantly, dividend policy can be a window into the financial health of a company.  Stable, growing dividend payouts are generally a sign that a company has competitive advantages (a business “moat”), a healthy balance sheet, and management confidence that its earnings and cash flow will continue to grow and fund the payout.  For investors, strong, dividend paying companies have provided a significant share of total return over time and can provide downside protection during bad times.  Dividend payers have also historically generated a higher return with lower volatility.  The key point is that, for us as trusted stewards of our clients’ money, a steady dividend shows that company management sees shareholders as business owners or partners, and is focused on maximizing shareholder value, versus simply trying to build the largest empire they can. 

Thank you for your confidence in Westwood.  Please let us know if you have any questions, or how you may access strategies that invest in high quality dividend paying companies.

Print PDF Version

Interest rates in the United States are extremely low. In 2011, rates declined to near historic lows in part due to the sovereign debt crisis in Europe and fears of a global recession.  However, investors should note that rates are effectively much lower than many realize. In fact, real interest rates, which take inflation into account, are negative today. In short, all investors, not just those in the bond market, need to “get real” and understand the challenges, opportunities and implications of an environment defined by negative real interest rates.

So just how low are U.S. interest rates? For years, some of the lowest yields in the world have been in the Japanese government bond market. For comparison, Chart 1 shows the current yield curves for U.S. and Japanese government securities. U.S. nominal rates, or interest rates that do not take inflation into account, are higher across the yield curve. In both countries short rates are effectively 0% and are expected to remain at that level for the foreseeable future. (The Federal Reserve recently reiterated their expectation that the Fed Funds rate would remain at 0% until at least late-2014.) Despite the strong Treasury bond rally in 2011, longer term nominal rates are still higher in the U.S., with a difference of roughly 1% for the 10-year bonds.

But what do these same interest rates look like if we subtract inflation and convert to real yields? In the U.S., inflation as measured by the Consumer Price Index (CPI) is rising by 3.4% on a year over year basis. However, Japan is experiencing deflation, with their overall CPI falling by 0.5%. Taking both of these into account, Chart 2 shows that real interest rates in Japan are actually sharply higher than in the United States. In fact, on a real basis, U.S. Treasury yields are negative across the entire yield curve.

Negative real yields are not limited to the U.S. Treasury market. As of 12/31/2011, the yield of the Barclays Aggregate bond index, which includes most investment grade bonds issued by U.S. corporations, was 2.2%, or an amazing -1.2% on a real basis.

Borrowers vs. Savers

Negative real interest rates represent a transfer of wealth from savers to borrowers. In short, borrowers are the winners and savers are the losers. Many corporations, along with the U.S. government, are currently able to borrow at negative real yields – effectively being paid to take on debt. In fact, maintaining negative real rates, referred to as “financial repression”, has historically been used to reduce the real value of the liabilities of heavily indebted  countries. Of course, as economists often say, “There’s no such thing as a free lunch”. In this case it  is savers paying for the tab as the real value of their assets declines over time, unless they are able to earn a rate of return higher than the pace of inflation.

 
What’s an Investor to Do?

In the not so distant past, investors could look to the bond market to provide a level of income and rate of return that was in excess of the rate of inflation, in other words a positive real yield. Today, that is not the case, at least not without taking on more risk and volatility than many are comfortable with. So what can an investor do? Below are a few suggestions:

• Be patient –the current challenges took a long time to create and they will take a long time to solve
• Be flexible – look outside traditional income producing asset classes
• Be opportunistic – let volatility work for you and buy securities that become undervalued
• Resist the temptation to take on extra risk in order to achieve higher yields – nothing is free
• Stay focused on the fundamentals – stronger companies have more sustainable yields
• Growth matters – growing companies can increase their distributions to investors 
• Diversification and tactical allocation changes can work in your favor

Reflecting the points above, income-producing securities from a range of asset classes and across the capital structure can be an effective way of meeting one’s investment objectives. Royalty Trusts, REITs, Preferred securities, and dividend-paying common stocks are all examples of assets that are currently producing greater real yields than bonds and in many cases are much more attractively valued. When derived from an assorted group of high quality securities, income can help satisfy the dual mandate of many of today’s investors – generate an attractive level of total return, with a low volatility profile. Now that’s what we mean by getting real.