Columbia's Davis on Finding Quality Dividend Stocks (Audio)

go ahead of the close on this Monday. Down Industrial is up eighty eight points to eighteen thousand, two hundred thirty four. Again there are five tenths of one percent. Nastak is up thirty four points, a gain of seven tenths of one percent. The tenure down twenty one thirty seconds, with the yield of one point four three percent, Gold down three seventy the ounce the thirteen fifty four, a drop there of three tenths of one percent, and crude oil down cents forty four forty six right now for

a barrel of West Texas intermediate crude. That is a drop right now of two point one percent. So again, recapping stocks are higher, but off their session highs. The SMP up eight, a gain of four tenths of one percent. I'm Charlie Pellot and that's a Bloomberg business flash. Charlie Pella, thank you so very much. Time now for the e t F report, brought to you by National Realty Providers of Satisfaction Guaranteed New York City realty investments see them at n r I A dot net. Gold up twenty

eight percent this year. That means a lot for some of the biggest gold e t s. For this now we turn to our own Catherine Cowdry. Gold is climbed twenty eight percent this year as investors turned to haven's in the wake of the UK's Brexit vote and as traders cut bets on the Federal Reserve, increasing interest rates this year. Bloomberg Intelligence analyst Eric beltounis and what this means for the biggest gold ETF, the Spider Gold Shares or g l D. G l D has taken in

thirteen point five billion dollars. That is by far the most taken in any year, and we're only halfway done. Bealtuna says, there's broad based interest in ETFs in this category. You look down the precious metal ttfs, you see fifteen different ones have taken in flows, none of them close to g l D, but still it means somewhere out there people are buying different types of precious metal ttfs.

That is a sign that the depth of the concern in the market right now is great because it just means that people are using a different variety of flavors to start to work gold into their portfolio. Tuna says investors are turning to gold as a crisis head and to diversify their portfolios in a time of volatility. That's your Bloomberg ETF report. I'm Catherine Cowderie. This is taking Stock with Kathleen Hayes and Pim Box on Bloomberg Radio,

searching for income in a yield starved world. Scott Davis his senior portfolio manager and head of income Strategies at Columbia thread Needle Investments and he joins us now Boston. Scott Davis, thank you very much for being with us. What if you could tell us some of your strategies to run the Columbia Dividend income funded ticker symbol they're a g s F t X. Yeah, thanks for having me on UM. You know, I think one of the things that does make us unique is dividends are never

our first cut on a stock. Actually, um, we actually look at what we think sources the dividend, and for us, that's sustainable pre cash flow from operations. And I think that's where oftentimes people get confused. A lot of people will talk about diving in the yield, and we we prefer to talk about actually income generation and looking for companies that can you know, generate decent income but from their cash flow from operations. That's how they fund it.

That's what makes it sustainable over time and and can grow that over time. That that that's key to what we do. Well. That sounds very sensible to me. What what would you say right now is distinguishing companies that you know, meet your hurdle, that past that bar, and those that don't. Again, what we do is, by first of all, we do two things. You know, I think a lot of people are concerned that some of the dividend stocks have gotten overvalued, and I think there are

areas where where there is real overvaluation. UM. But what we are trying to do is we actually make We don't think dividend yield is a value metric. We actually use cash flow yield. So most of our companies still are you know, our average pre cash flow and our companies is about five percent. Market is down under three percent currently. A great example of the name would be something like a Johnson and Johnson UM. You know this. You know, this company has been in business since the

car Field administration, last of the triple A balance sheets. UH. You know, trades in a multi multiple market multiple but has great pre cash flow yield and growing pre cash flow UH and has basically has a dividend yield above that of a tenure treasury and compounds it at about seven percent per and their dividend. And I was gonna say it's got that. The year to date, the Columbia Dividend Income Fund is up about eight a little bit more than eight and a half per cent, and that's

almost twice as good as the SMP five. Yeah, I think, you know, some of the things that really have helped us this year at the focus on quality yield is obviously helped UM. But I think you know, if you look at what's gone on for six months in the market and for the year, it's it's sort of a

tale of two cities. I mean, one where and one that some people are sort of playing momentum like recovery and energy stocks that we've seen, But a lot of people really do seem to be seeking out this stability, and you know, I think that our focus on quality has helped us there. So what is the challenge going ahead? Uh? Is it? Uh? The economy growing, getting more strong, and

the market broadly rising more. So people say, oh, well, you know why so I put my money in a dividend fund when I could go for something that's got more growth or a momentum. I think, yeah, that is a risk um. I will see that with certain dividend stocks, but a lot of the companies, well, we actually owned stocks across the buckets of yield. Uh you know if it so over eight percent of the names in SMP paid dividends. Uh, We're not just buying stocks for dividend heal,

We're buying them for total return. So you know, you could have a company like Mark, for example, that you know, may react to the fact that they have a drug that may come be used as a first line treatment with lung cancer, those types of things. So we're always looking for things that actually drive stocks beyond just the

fact that they're yield vehicles. I noticed that you've got a large holding in Microsoft, and I'm wondering whether you could comment you also have Apple about investing in technology stocks based on the criteria that you describe that cash generation. Well, one, I would say one of the things that we think is very porton is remaining um uh diversified throughout sectors. UM. Some of my people that I compete with now are invested basically in consumer stables and utility stocks, and so

they're almost running sector funds UM. So we we do try to keep it diversified across UM industries. So we do play in technology for example. And you have names like Microsoft, and that's a company that you know, a few years ago people sort of left them for dead and in a lot of ways, and they've done a great job. The new CEO came in and really done a great job of transitioning this company to one where uh you know, people think of them as one of the leaders in in UH cloud for example. And so

it's a company generating tremendous fly cash flow. It's probably it's growing revenues, it's growing income. And those are the names that you tend to like. Apple is a stock that we do own. Their generating a tremendous amount of cash.

They have some growth challenges right now, and but we would tell you that we probably think that that sort of troughs this year, and uh so that may be an opportunity to I always think of energy being at the opposite end of the spectrum from technology, right, it comes out the ground, it's crude, it's black, etcetera, etcetera. Uh And xCE on Mobile is your second biggest holding in the Columbia Dividend Income from funds. PIM just said g s f t X as a ticker symbol. Uh So,

what what is your outlook? Is it because of x in particularly or does this also reflect your view for energy companies more broadly. Well, one of the things we did in two thousand and fourteen one soil prices cracked. Um, you know it's I work with two other people, Mike Barkley and Peter San Touro, and we've all been in the business over twenty years, and so when you see oil prices cracked the way they did, that wasn't our

first rodeo. We went through that in the eighties too, and so we actually de risked the portfolio and went to companies that we thought had great balance sheets and and and just great position UM and ex On Mobile. That that's one of the reasons that we hold this stock UM. I think one of the things we're seeing now though, as we are seeing a supply response dramatic to dramatic cutbacks and cap X and I think that

that has allowed oil prices to stabilize. And so we actually do think that, you know, there's a good chance that you know, supply and demand is coming UH is being matched all of a sudden, and that's probably a good thing for oil prices. We tend to play with the companies that historically, you know, just have great balance sheets and companies that we now have stained power. UM. I will tell you we'll probably lag with an ex On Mobile of oil prices go up dramatically, but it

didn't go down dramatically. Actually as a march that was one of our few oil companies that was actually in plus territory. So it's it's the way we do a lot of things. We tend to play stocks with lower volatility and and and that's been sort of key to to a lot of our shareholders. Scott maybe just offer up the ample of t j X companies because they raised their dividend in March. But that kind of illustrates

your your focus on cash flow. Yeah, and one of the things that we're always talking to people because again people make the mistake of focusing on dividends first, and and we actually think that dividends, you know, actually the residual that you get from great business operations UM and t j X is just a great example, you know that where they increase their dividend over UM, a company

that has consistently growing their dividend for twenty years. What I love is that the statement that is actually made by t t X as management and they say, you know, with our tremendous cash flow and excellent financial returns, remain committed to returning cash to shareholder, will simultaneously reinvesting in the business. That's what we want. We want companies growing their business and growing their dividends. Well, I think a lot of us wants. That's what Scott Davis. We're very

happy you joined us today. Scott is Senior portfolio a manager and head of income Strategies at Columbia Thread and Needle Investments. Coming up We're gonna be looking at the movers and shakers at the close. Our stocks that are Dave Wilson way back on Kathleen Hayes along with Tim Fox, This is Bloomberg