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With investors searching for higher yields and returns in a low-interest-rate environment, the Lord Abbett Calibrated Dividend Growth strategy seeks to deliver attractive total return by identifying undervalued stocks among a universe of companies with a history of increasing their dividends. Rick Ruvkun, Lord Abbett Partner & Director of Calibrated Equity Management, and Walter Prahl, Lord Abbett Partner & Director of Quantitative Research, co-manage the strategy.
Q. What does the strategy invest in?
A. We focus on a stock universe of large and mid-sized U.S. companies with a history of consistent dividend growth, which we believe will result in a portfolio of high-quality, blue-chip companies with a lower risk profile than the broader market, since they are often market leaders with stable business models, strong balance sheets, and management teams committed to shareholders.
Q. What kind of dividend growth do you look for?
A. Rather than chasing companies with the highest yield, which can be risky, we look for companies with a consistent record of raising their dividends—usually for the last 10 consecutive years. Why? Because that has historically produced a group of stocks with the type of characteristics that most clients prefer: higher quality, higher yield, faster dividend growth, and lower risk, according to BNY Mellon and Standard & Poor's.
Q. How is this strategy managed?
A. The management process for the Calibrated Dividend Growth strategy is similar to that used with other strategies in our Calibrated Suite. All those strategies follow a rigorous, active management approach that combines insightful fundamental and quantitative investment research.
Q. How would you describe your research discipline?
A. We follow an integrated approach that combines insights derived from fundamental research with a proprietary valuation model. The team seeks to identify stocks that it believes to be selling below their true value.
Q. What do you look for?
A. Our research analysts investigate a wide range of factors to develop expectations for an individual company. These include the outlook for new products, shifts in the competitive landscape, changes in executive management, and trends in the company's balance sheet. Our analysts use these inputs, as well as others, to develop proprietary projections for each company's near-term earnings, intermediate-term EPS [earnings per share1] growth rate, and long-term earnings potential.
Q. Does the focus on consistent dividend growers lead you to some sectors more than others?
A. Yes, there are currently more consistent dividend growers in the consumer staple and industrial sectors, so those sectors currently have a larger weighting in our portfolio than they have in the S&P 500® Index.2
Q. Conversely, are there sectors you tend to hold less of?
A. Yes, there are currently relatively few information technology companies that pass the 10-year threshold of dividend growth, so we currently have less weighting in information technology than in the S&P 500 Index as a whole. However, that can change if more tech companies are successful in achieving a sustained record of dividend growth.
Q. What do you believe will be the biggest factor in the performance of the strategy?
A. Over time, we would expect that the majority of the strategy's outperformance in relation to the benchmark S&P 900® 10-Year Dividend Growth Index3 would be the result of our stock selection and ability to pinpoint when attractive stocks are overvalued and when they're undervalued.
Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.
Risks to Consider: The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Investing in small and mid-sized companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations, and illiquidity. Investing in international companies generally poses greater risk than investing in domestic securities, including greater price fluctuations and higher transaction costs. Special risks are inherent to international investing, including those related to currency fluctuations and foreign, political, and economic events. These risks can be greater in the case of emerging country securities. No investing strategy can overcome all market volatility or guarantee future results.
Neither diversification nor asset allocation can guarantee a profit or protect against loss in declining markets.
Dividends are not guaranteed and may be increased, decreased, or suspended altogether at the discretion of the issuing company.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.