What is a dividend equity strategy? At its core, a dividend equity strategy focuses on investing in established companies that generate excess cash flow and pay regular dividends to shareholders. This approach provides two key benefits: steady income and risk management. By emphasizing financially strong businesses with proven track records, dividend equity strategies can help investors achieve lower-than-market volatility and long-term portfolio growth.
After identifying the need among our clients for an income-generating equity investment, we conceived our own dividend strategy – one that leverages our expertise in value-oriented investing and seeks to deliver returns above comparable style box strategies while reducing volatility for investors.
We kept all the things investors like about dividend equity investing then improved upon the strategy by adding more flexibility.
We kept all the things investors like about dividend equity investing and enhanced it with a sharper focus on total capital return and greater flexibility, allowing us to invest in dividends and share repurchases. This approach allows us to adapt to changing market conditions and seize opportunities other managers might overlook.
Why Dividend Equity Flexibility Matters for Investors
Flexibility widens our investment opportunity set. By managing dividend yield at the portfolio level rather than focusing on the dividend yield of individual stocks, we’re able to own stocks that conventional dividend equity strategies cannot, including non-dividend-paying stocks.
By our mandate, if a company’s business model, profitability, cash flow, and earnings meet our criteria and the company returns capital to shareholders through share repurchases or debt reduction, it’s a candidate for investment – even if it doesn’t pay dividends. In fact, in a few instances, non-dividend-paying stocks held in the portfolio have transitioned to paying dividends, validating the effectiveness of our flexible strategy.
Dividend Yield at the Portfolio Level
Source: Bloomberg
Graph frequency is Daily for 12/31/2018 to 9/30/2025. Yield is last twelve months dividend yield.
Navigating Economic Dislocations with Flexible Dividend Investing
Like many dividend equity investors, we prioritize dividend growth. However, where we differ is that we don't adhere to rigid screening criteria that exclude companies that haven't consistently raised their dividends or have lowered them.
For instance, one of our portfolio holdings maintained a steady annual dividend of $0.10 per share for nine years before announcing a 250% increase to $0.25 per share. Traditional “screening-based” dividend growth strategies might have excluded this stock because its dividend had remained unchanged for so long. Our flexible approach allowed us to invest in the stock before the substantial dividend increase.
This differentiated approach had delivered differentiated returns. Over the past six years, Dana’s Concentrated Dividend Equity Strategy has achieved approximately 66% cumulative dividend income growth, significantly outperforming the 43% dividend growth of the Russell 1000 Value Index.
Source: Dana Investment Advisors, FactSet Research Systems
Flexible Dividend Strategies During Market Downturns
Flexibility is also advantageous during economic or sector-specific dislocations that force some companies to lower dividends. While the strict mandates of most conventional dividend equity strategies often prevent them from investing in these companies, our flexible approach allows us to retain or even buy their stocks if we believe their long-term earnings potential remains intact.
This process has been validated time and time again, most recently following the pandemic-related market rout. When interest rates and energy prices plunged in 2020, we bought select stocks within the financials and energy sectors at prices we deemed attractive and because we had confidence in their recovery potential. Our confidence in these and all our portfolio holdings was rewarded with a portfolio dividend yield that decreased less than the Russell 1000 Value Index during the pandemic and rebounded more swiftly after the pandemic.
Like all our investment strategies, Dana’s Concentrated Dividend Equity Strategy seeks to deliver returns above comparable style box strategies. With a uniquely flexible investment process that includes managing dividends at the portfolio level and pursuing dividend growth without rigid restrictions, we believe we can deliver higher income and better risk management, ultimately benefiting our investors through superior long-term performance.
Frequently Asked Questions (FAQ)
Q: What is a dividend equity strategy?
A dividend equity strategy focuses on investing in companies that generate strong cash flow and return capital to shareholders—typically through dividend payments. These strategies are popular with investors seeking both steady income and portfolio stability.
Q: How is Dana’s Concentrated Dividend Equity Strategy different from traditional dividend strategies?
Unlike conventional approaches that only invest in dividend-paying companies, our strategy manages dividend yield at the portfolio level. This flexibility allows us to invest in both dividend-paying and non-dividend-paying companies that meet our quality and return criteria, expanding the opportunity set for growth and income.
Q: Why does flexibility matter in dividend investing?
Flexibility enables diversification and a wider opportunity set. By not being constrained to rigid dividend growth screens, the strategy can adapt to market conditions, include companies returning capital through buybacks or debt reduction, and capture future dividend initiators.
Q: Can non-dividend-paying stocks be part of a dividend strategy?
Yes. In our approach, companies that don’t currently pay dividends but demonstrate strong fundamentals—such as profitability, free cash flow, or share repurchase programs—and a commitment to capital return through share repurchases or debt paydown are eligible. Several portfolio holdings have transitioned from non-dividend-paying to dividend-paying stocks, creating additional income growth for investors.
Q: How does the strategy respond to market downturns or economic dislocations?
During periods of market stress, flexibility allows us to hold or add positions in high-quality companies temporarily lowering dividends but with strong long-term earnings potential. For example, during the 2020 pandemic sell-off, we added select financial and energy stocks at attractive valuations, positioning the portfolio for faster recovery and stronger dividend growth.
Q: Who might benefit most from this strategy?
This strategy may be well-suited for investors seeking higher income potential, reduced volatility compared to broad equity markets, and exposure to dividend growth without the constraints of traditional dividend-only mandates.
How can investors access the Concentrated Dividend Equity Strategy?
Originally launched for institutional investors, the strategy is now available to a broader range of clients as an actively managed ETF. Interested investors can contact Dana Investment Advisors to learn more about eligibility and account setup.
Check out this recorded interview with Portfolio Manager Mike Alkhazov to learn more about our Concentrated Dividend Equity Strategy.
