September 4th, 2011
As capital markets move through another period of volatility and uncertainty, it is increasingly important to remain focused on investment fundamentals. At Coleford, we consider a variety of quantitative and qualitative criteria when we evaluate current holdings and new opportunities. We believe it is especially important to consider key metrics such as credit quality, dividends, ROE and diversification by industry and geography. We remain comfortable with these measures in the context of our portfolio.
More specifically, the current average credit rating of our model equity portfolio, as measured by S&P, is a solid “A.” This measure reflects balance sheet strength and the reliability of earnings and cash flow. Additionally, the current dividend yield on the Coleford model equity portfolio is above 3.0%. This is higher than current yields on short-term money market instruments and bonds. Compared to fixed income securities, equity holdings provide more opportunity for additional return from capital appreciation.
The Coleford model equity portfolio also remains well diversified and of note, consists of Canadian and US multinational companies, many of which generate significant earnings and cash flow outside North America and the Eurozone. These companies are positioned to participate in foreign markets that are recovering more quickly.
Dividend yield is another good indicator of earnings and cash flow stability, particularly during periods of market volatility. Historically, dividends have also formed an important part of long term returns as evidenced in the chart below.