DAC Insights: Long Term Dividend Growth and Sustainable Business Practices
What Is Sustainable Investing and How It Aligns with DAC’s Core Investment Philosophy
Dividend Assets Capital is committed to a core investment philosophy that influences every element of our decision making, and folds into one of the most forward-focused financial streams: Sustainable Investing.
Most commonly referred to as the “Double Digits for a Decade or More” strategy, our philosophy determines that for a company to be considered for our investment portfolios, it must have a proven track record of:
- Dividend Growth: Showing consistency in generating increasing dividends for shareholders.
- Double-Digits: Revenue and earnings that are gaining value in the double digits.
- Decade or More: A track record of this Double-Digit Dividend Growth that has maintained consistent positive growth for at least a full decade.
We believe that these indicators are not only financially favorable and dependable, but that companies that declare increasing dividends substantially and consistently tend to perform uncommonly well for reasons beyond dividends alone. With little to no exception, they tend to be companies led by great management teams, “leaders in promoting a sustainable business practice,” and perform with an intent to improve long term sustainability of the enterprise, thus attaining and sustaining returns for investors.
“All-season durable growth companies are led by management teams that remain focused on long-term value creation, even in times of economic and financial stress. Great management teams can often uncover opportunities to invest in future growth and support all their stakeholders, with the intent to improve the long-term sustainability of their enterprise.”
Determining Sustainability
Correlation of a sustainable business practice can be ranked by a Total Sustainability Score based on a three-dimensional criteria (Economic, Environmental, and Social) along with a Sustainalytics Rank, which is an overall percentile rank assigned to a company based on its Environmental, Social, and Governance (ESG) Score, relative to its industry peers.
“Aggregate ESG performance encompasses a company’s level of preparedness, disclosure, and controversy involvement across all three ESG themes.”
Disclosure ranges from 0.1 for companies that disclose a minimum amount of ESG data to 100 for those that expose every data point collected by Bloomberg. Each data point is weighted in terms of significance and impact, and with individual consideration given to sustainability reporting within industry sectors. This assures each company is only evaluated in terms of data relevant to its industry and the associated environmental factors.
Preparedness focuses on identifying and assessing the comprehensiveness and handling of a company’s ESG risk management as well as their ESG-affecting programs and policies. For example, management indicators for Occupational Health and Safety include external health and safety certifications and assessment of the company’s health and safety management system and quantitative measurements, such as lost time, injury frequency rate, and employee fatality rate.
Controversy: Can be thought of as the company’s degree of exposure, vulnerability, or susceptibility to ESG risks. The industry in which a company operates largely determines the ESG risks it faces. For example, oil and gas companies will be highly exposed to environmental issues while in contrast, a consumer technology business would be more exposed to social and data management issues such as privacy practices. Controversies can negatively impact a company’s management (or overall ESG) score when serving as a signal that management initiatives were insufficient or ineffective and risk, performance, or returns therefore negatively affected.
Sustainalytics Ranking
Combining preparedness, disclosure, and controversy, the Sustainalytics Ranking measures a company’s managed ESG risk for each material ESG issue. These scores integrate to arrive at the company’s overall ranking. The lower company’s Sustainalytics Ranking, the more the overall risk of experiencing material financial impact due to ESG factors.
ESG & Performance Exclusivity
When selecting a viable company for the Dividend Assets Capital portfolio the team must incorporate a multidisciplinary research approach to help assess a company’s future direction. “Companies with long term shareholder-friendly policies provide strong credibility to execute stakeholder-friendly policies in the future.” In other words, sustainable business practices help influence future dividend returns, and Dividend Assets Capital only invests in companies with ongoing, consistent dividend returns. It is a proven investment strategy based on a foundation of success with minimum measurement set at “a decade or more.”