Thought of the Week

1. Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis
through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
2080 Ringling Boulevard, Sarasota, Florida 34237 • Tel: (866) 641-2186 • Fax: (941) 918-0405 • www.gf-pc.com • info@gf-pc.com
SYNOPSIS
• Stocks that consistently pay dividends
tend to outperform non-payers.
Furthermore, companies that grow
their dividends have massively
outperformed those that keep their
dividends constant.
• Finding stocks with dividend growth
requires tremendous skill, and investors
get burned when they buy stocks where
the underlying fundamentals cannot
support the dividend.
• The Federated Strategic Value (FSV)
portfolio is managed specifically to
search for stocks that increase their
dividends over time.
DIVIDEND PAYING STOCKS DOMINATE
The chart below shows the performance of S&P 500
companies from 1972 – 2012, broken down by dividend
payment policy:
There’s quite a bit of data in this chart so let’s start by
highlighting a few key points:
1. Dividends Matter: Putting $100 into those S&P 500
stocks that pay dividends consistently (dark blue
line) in 1972 would be valued at very respectable
$3,103 in 2012. A portfolio of stocks that did not
pay dividends (brown line) would only be worth
$193, or 94% less than the portfolio of stocks that
pay dividends.
2. Dividend Growth Matters More: Selectively picking
stocks that initiated and/or grew their dividends over
time (light blue line) would return $4,168 over the
same time period, or 34% more than picking those
stocks that paid consistent dividends (dark blue line).
3. Cutting Dividends Stings: Buying stocks that cut
dividends (dark green line) would have actually lost
$12 over this 40 year time span, which shows just
how badly the market reacts to companies that cannot
maintain the proper financial health to support their
dividend payments.
This chart clearly shows the power of owning dividend-paying
stocks over time. However, it’s not as easy as
simply picking stocks that pay high dividend yields and
holding them indefinitely. Stocks with abnormally high
yields often fall into two categories:
1. Stock Price Whacked: A dividend yield is calculated
by taking the amount of the dividend payment and
dividing it by the stock price. For example, if a stock
pays $4 in dividends each year when the stock price
is $100, then the dividend yield is 4% ($4 ÷ $100 =
4%). Stocks with unusually high yields are often the
result of the stock price getting hit. If this hypothetical
stock price went from $100 down to $40, then the
yield would increase to 10% ($4 ÷ $40 = 10%).
The Power of Strategic Dividend Growth
THOUGHT FOR THE WEEK
Source: Ned Davis Research

2. Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis
through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
2080 Ringling Boulevard, Sarasota, Florida 34237 • Tel: (866) 641-2186 • Fax: (941) 918-0405 • www.gf-pc.com • info@gf-pc.com
2. Unsustainable Payouts: Stocks that pay high yields
must be carefully analyzed to ensure that the
company can continue to support the dividend
payment. If a company earns $10 million this year
and has committed to pay $15 million in dividends,
then management may put the financial health of the
company at risk to keep its promise to shareholders.
Therefore, investors are best suited to focus on the most
attractive risk-adjusted dividend potential rather than just
the stated yield.
GIVE IT TIME
Now that we’ve shown that an investor can do quite well
by staying on the blue lines and avoiding the dark green
one, we now need to explain why a long-term investment
horizon is critical when investing in dividend payers.
When a company pays a dividend, the value of that firm
falls by the amount of the dividend paid. For example,
if a firm is worth $500 million and they paid a dividend
totaling $50 million to investors, then the resulting
value of the firm is $450 million ($500 - $50 = $450)
after the dividend was paid with cash in the firm’s bank
account. Since the firm now has $50 million less in the
bank, the stock price must be reduced by that amount as
well, since the value of the firm is now lower.
The key point here to remember here is that shareholders
theoretically do not gain or lose from a dividend at the
time of payment. They receive the dividend amount in
cash equivalent to the amount of loss in stock price.
Therefore, an investor must be patient and wait for the
company to rebuild that $50 million in value by selling
more goods and/or services. Those companies who
continually replenish the amount paid tend to have stocks
that fall on the dark blue line above. They pay consistent
dividends because their revenues are also consistent.
If our hypothetical firm were able to not only replenish
the $50 million but actually grow that figure over
time, then they would likely end up on the light blue
line above (the most profitable group of investments
on the chart). For example, if the firm grew profits to
$60 million this year and $70 million next year, then
company management could raise the dividend payout
to reflect their growth in profits.
Simply put, investors must give dividend paying stocks
time to replenish the value lost by paying the dividend to
shareholders. Investors skilled at finding these companies
that can perform this process of generating profits and
distributing them to shareholders consistently will most
likely be rewarded over the long run.
NOTE: Companies unable to replenish that $50 million
payment tend to gravitate towards the dark green line
over time. Once a firm realizes that they cannot support
their dividend, they will cut it or suspend it entirely, which
almost always crushes the stock.
IMPLICATIONS FOR INVESTORS
In an ideal world, keeping a portfolio highly concentrated
on the blue lines would be easy, however, it’s quite the
opposite. Investors need an active manager for this type
of investing because knowing how to determine whether
a stock’s future is on a blue line or the dark green one
requires tremendous skill and experience.
The Investment Committee consists of seven highly
experienced professionals who have been trained to look
through a company’s financials to determine the health
of their dividend. These stocks are pervasive throughout
most of the DIAS portfolios given their potential for strong
income generation and capital appreciation.
Furthermore, we have partnered with Federated Investors
to offer our investors the opportunity to allocate a portion
of their overall portfolio to dividend growers through the
Federated Strategic Value (FSV) fund. This strategy offers
an investor a highly targeted approach to owning stocks
that Federated’s team expects to end up on that light blue
line above.
NOTE: While we encourage investors to consider FSV,
we strongly urge that you consult your financial advisor
to determine the appropriate allocation given your risk
THOUGHT FOR THE WEEK

3. Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis
through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
2080 Ringling Boulevard, Sarasota, Florida 34237 • Tel: (866) 641-2186 • Fax: (941) 918-0405 • www.gf-pc.com • info@gf-pc.com
This commentary is not intended as investment advice or an investment recommendation. It is solely the
opinion of our investment managers at the time of writing. Nothing in the commentary should be construed as a
solicitation to buy or sell securities. Past performance is no indication of future performance. Liquid securities,
such as those held within DIAS portfolios, can fall in value. Global Financial Private Capital is an SEC Registered
Investment Adviser.
profile and investment objectives. Volatility tends to be
higher in equity-only portfolios and will require a long-term
investment horizon.
The bottom line is that stocks that offer dividend growth
over time tend to significantly outperform other dividend
paying policies. Federated’s Strategic Value portfolio is a
great way to create a targeted allocation to this group of
stocks managed by a team of highly skilled investment
professionals.
THOUGHT FOR THE WEEK
Sincerely,
Mike Sorrentino, CFA
Chief Strategist, Aviance Capital Management