Similar to many areas of our world, the first few months of 2025 have presented a unique opportunity to “stress test” the principals we’ve built over the past 5 years in our dividend strategies.
While market environments never repeat, they often rhyme and the volatility of March and April offered a few similarities to times past:
- The speed of market pullback was reminiscent of the COVID market – with a precipitous fall, being followed by a strong move upward that surprised even the most bullish investors.
- Those waiting for “just a bit more” before buying into the weakness, were likely left chasing the rally – Just like several corrections including 2018, the market stayed just shy of a 20% bear market metric using closing prices. (Thomson One)
- The market bottomed (at least for the time being) with a near capitulation. Represented by the VIX, the “fear gauge” of the market reached the 50’s – and indiscriminate selling was occurring across companies most exposed to tariffs. While there is no guarantee of a bottom, high levels in the VIX have represented great entry points over the past 10+ years.
So how do we manage a portfolio of companies when the future is so uncertain?
The answer is to this is to design our portfolio to be “anti-fragile” – a phrase borrowed from Taleb the author of the popular “Black Swan” – holding quality companies best able to succeed in difficult environments. Essentially, our goal within the strategy is to tilt the odds in our clients’ favor by always fishing in friendlier waters.
Everything comes with a cost and owning quality companies can lead to less upside in strong markets, however it is periods like early 2025, where dividend growth strategies historically shine. While hyperactivity is not our mantra, through our fundamental work on earnings calls and Dr. Bowlin’s management of our “Bullpen” or “Wish list” it is periods like these that we also often find opportunities to add new stocks to the portfolio. Whether it be a company particularly affected by the narrative of the day, or a high-quality, and often expensive, business that has dropped into our fair value range, it is periods of high volatility that allow us to set the stage of the portfolio for future bull markets.
So how did it go?
We continued our streak of all companies continuing or growing dividends and saw many firms across the markets announce strong dividend increases, despite the market uncertainty.
Intra-day, the S&P 500 declined 20.22% from February 19th to April 8th. Over the same time, the Morningstar Dividend Growth Index fell 14.7%. (CNBC)– capturing slightly less than ¾ of the overall market’s pullback. Many of our favored sectors including Consumer Staples, Utilities, and Healthcare are positive on the year through the end of April.
As we move forward, volatility and pullbacks will likely continue in fits and spurts, however through this we will remain focused on finding businesses that we believe can generate durable revenue, profit, and dividend growth. The secular growth themes of artificial intelligence & manufacturing renaissance in America are poised to continue to transform our economy and markets, and we remain focused on finding beneficiaries of these themes and others across the landscape from utilities and power generation to health care and bio-tech, to consumer staples and restaurants. It is to this end that I and our full investment committee work.
It is our privilege to serve as your financial advisor and wealth manager, and it is not one we take lightly.
May 2025
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
