ThomasPartners Strategies: Performance

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Onscreen text: An in-depth look at dividends.

Bill McMann sits in his office.

Bill McMann [onscreen]: I am Bill McMann, and I'm the Chief Investment Officer of ThomasPartners.

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Bill [off-screen]: Our philosophy is to focus on companies that pay their shareholders dividends. Why dividends? Well, let's take a look at our approach.

Onscreen text: Dividends are always positive.

Bill: Dividends are always positive. They always make a positive contribution to total returns.

Announcer [off-screen]: Let's take a closer look at those returns.

Chart: Shows how dividends account for greater returns than price appreciation.

Announcer: Since 1926, the S&P 500® has averaged about 10% annualized returns. Some of that is due to prices going up, and some of that is from dividends. Here, the white column shows the contribution from price appreciation. The blue column shows the contribution of dividends. Price appreciation can go negative, but dividends are always a positive contribution to total returns.

Onscreen text: How have dividends performed over time?

Bill: Historically, dividends have proven to be a very important component of total returns over time. 

Chart: Shows how reinvesting dividends can lead to greater investment growth.

Announcer: This example shows the growth of an investment in the S&P 500 Index over forty years. Let's assume you purchased one share of the index 40 years ago at the then-current market rate. Forty years later, that one share would have experienced a fair amount of appreciation. But, if you'd reinvested the dividends paid by the index each year, your total investment would have grown even more. That's the power of dividends.

Onscreen text: How have companies that increased their dividends performed over time?

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Bill [onscreen]: A dividend increase is a very powerful signal. A company that is telling you their business is doing well and increases its dividends shows that management's confident in their long-term earnings power.

Chart: Compares four types of companies based on their dividends.

Announcer: Companies that increase their dividends have historically performed better than companies that don't. This study looks at companies with an inflation-adjusted market capitalization of one billion dollars or more, as of forty years ago. Each company was placed in one of four buckets based on their annual dividend payout policy: companies that didn't pay a dividend; companies that reduced their cash dividend payments compared to the previous year; companies whose policy stayed the same; and companies that increased their dividend payment over the previous year.

Each year these buckets were reallocated and sorted in the same manner. In the end, companies that initiated or increased their dividends provided much better total returns than those with other dividend policies. So those are the companies that ThomasPartners tends to select when building a portfolio.

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Onscreen text: What are the ThomasPartners® investment objectives?

Chart: Shows the three ThomasPartners income growth strategies.

Bill [onscreen]: The ThomasPartners objectives are income every month, income growth, and total returns over time. Our investment strategy and research process is really organized around those three objectives. 

Dividend income every month is important because it gives our investors a sense of certainty as they are budgeting for their year, particularly for those that are retired. The income growth piece is also very encouraging because it gives our clients an inflation offset. People's bills go up over time and we expect the portfolio to generate more income over time to help offset those effects.

Chart: Shows the estimated income growth for three different investment portfolios.

Announcer: Here's an estimate of the annual income that could have been generated over those years. Let's assume that on March 31, 2003, $1 million was invested in each of three portfolios: the ThomasPartners Dividend Growth Composite (Net of Fees); the NASDAQ Broad Dividend Achievers Total Return Index; and the S&P 500 Total Return Index. Here's the estimated annual income for the next twelve months. From the S&P 500 portfolio, the estimated annual income was roughly $18,000. From the U.S. Broad Dividend Achievers, it was around $23,000. And from the ThomasPartners Composite Portfolio, roughly $24,000. If we repeat this calculation each year on December 31, the example shows that the ThomasPartners portfolio would have provided more estimated income at the end of each year since inception versus the other two indices—and it provided a more steady income growth experience, delivering on its objectives of monthly income and income growth.

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Announcer: By seeking to provide a stable and growing income stream, ThomasPartners allows investors to receive the income generated from their equities and experience the long-term capital appreciation benefits of continuing to own stocks.

Chart: ThomasPartners' Dividend Growth Strategy and Balanced Income Strategies.

Announcer: ThomasPartners's approaches to investing share a similar investment philosophy: monthly income, income growth, and competitive total returns over time. Talk to your financial professional to see if ThomasPartners is right for you.

Onscreen text: Talk to your financial professional to see if the ThomasPartners Strategies are right for you.

The ThomasPartners® Strategies logo appears.

The logo is replaced by a table showing comparisons of how trailing returns (net of actual fees) has changed between multiple financial entities over one, five, and ten years.

LEGAL DISCLOSURES

Portfolio Management for the ThomasPartners Strategies is provided Charles Schwab Investment Management, Inc., dba Schwab Asset Management™, a registered investment adviser and an affiliate of Charles Schwab & Co., Inc. ("Schwab"). Schwab Asset Management and Schwab are separate entities and subsidiaries of The Charles Schwab Corporation.

Please refer to the Charles Schwab Investment Management, Inc. Disclosure Brochure for additional information. 

Past performance does not guarantee future returns; the value of investments and the income derived from them can go down as well as up. Future returns and the achievement of stated goals are not guaranteed and a loss of principal may occur. 

Diversification strategies do not ensure a profit and do not protect against losses in declining markets. Investments in managed accounts should be considered in view of a larger, more diversified investment portfolio. 

There are risks associated with any investment approach, and the ThomasPartners Strategies have their own set of risks. First, there are the risks associated with investing in dividend-paying stocks, including but not limited to the risk that stocks in the Strategies may reduce or stop paying dividends, affecting that strategy's ability to generate income. Second, investor sentiment could cause dividend-paying equities to fall out of favor and decrease in price. Third, there are risks associated with investing in fixed income asset classes, including through the use of exchange-traded funds (ETFs), that include, but are not limited to, interest rate risk, credit risk, high yield risk, and government security risk. Please discuss these and other potential risks with your Financial Consultant or investment advisor prior to investing.

©2023 Charles Schwab Investment Management, Inc. All rights reserved.
CC7313795 (0623-3SLF) (06/23) 

Contribution of Dividends to Total Returns: Sources: 2019 Stocks, Bonds, Bills & Inflation® (SBBI®) Yearbook (1926–2018); Bloomberg (2019–2022). The S&P 500® Total Return Index assumes reinvestment of dividends, includes capital gains, and does not reflect the effect of taxes and fees. Indexes are unmanaged and not available for direct investment. Past performance does not guarantee future results.

Growth of the S&P 500 Total Return Index assumes reinvestment of dividends, includes capital gains, and does not reflect the effect of taxes and fees. Source: S&P Global Indices and Bloomberg as of 12/31/2022. Indexes are unmanaged and not available for direct investment. Past performance does not guarantee future results.

The Power of Dividend Growth
Starting with the first quarter of 2019, CSIA changed vendors to Ned Davis Research, Inc. (NDR) for the generation of this study. The results of this transition produced different values for each of the dividend groups; in particular, the "Dividend Cutters and Eliminators" group now shows a noticeably higher total return than in prior charts. The "Dividend Growers" and "Non-Payers" groups' returns are now generally lower than under the previous calculation methodology. The "No Change" and "Dividend Cutters" groups' returns are now generally higher than under the previous calculation. Factors that affected these results include a change in the data source from the CRSP® 1962 U.S. Stock Database to S&P Capital IQ Compustat and S&P Dow Jones Indices, a change in the rebalancing period from annually to monthly, a removal of the $1 billion inflation-adjusted market cap requirement (the stocks included in the study are from the NDR Multi-Cap universe, which represent the top 97% of capitalizations in the NDR All-Cap Universe), and a shortening of the evaluation period (i.e., the NDR Multi-Cap Stocks Universe starts on 12/31/1980, while the previous study covered a 40-year period). As of the most recent evaluation period, the NDR Multi-Cap universe contained 6 stocks, or 0.4% of the universe, with a market cap less than $1 billion.

The Dividend-Paying Stocks chart shows the historical total returns of stocks based on their dividend policies. These stocks were grouped into four categories of dividend policies: Non-Dividend-Paying stocks, Dividend Growers and Initiators, Dividend Cutters and Eliminators, and Dividend Payers with No Change in Dividends. The methodology in creating this chart is as follows. 

1) Dividend-Paying vs. Non-Paying
Each company's dividend policy is determined by its indicated annual dividend. Ned Davis classifies a stock as a dividend-paying stock if the company indicates that it is going to be paying a dividend within the year. A stock is classified as a "non-payer" if the company's indicated annual dividend is zero. Prior to July 2000, the indicated annual dividends were updated on a quarterly basis. Since July 2000, the indicated annual dividends are updated on a daily basis, so the most up-to-date information is used. The annualized returns are calculated using monthly equal-weighted averages of the total returns of all dividend-paying (or non-paying) stocks during the 1981–2018 time frame. A stock's return is only included during the period it is a component of the underlying NDR Multi-Cap universe. The dividend figure used to categorize the stock is the company's indicated annual dividend, which may be different from the actual dividends paid in a particular month. Indices are unmanaged and cannot be invested.

2) Dividend-Growing, No-Change-in-Dividend, and Dividend-Cutting
Each dividend-paying company is further classified into one of the three categories based on changes to their dividend policy over the previous 12 months. "Dividend Growers and Initiators" include stocks that increased their dividend anytime in the last 12 months. Once an increase occurs, it remains classified as a "Grower" for 12 months or until another change in dividend policy. "No-Change" stocks are those that maintained their existing indicated annual dividend for the last 12 months (i.e., companies that have a static, non-zero dividend). "Dividend Cutters and Eliminators" are companies that have lowered or eliminated their dividend anytime in the last 12 months. Once a decrease occurs, it remains classified as a cutter for 12 months or until another change in dividend policy.