Eaton Vance's Allison Sees Dividend Stocks as Expensive (Audio)

Vance Management. We're gonna learn about how to grow some income in a world where bond deals are lower negative and even dividend funds are looking a little bit harder to pick and pick well him. Yes. Indeed, for example, today Rio Tinto posting it's the worst of profits since the two thousand four and also cut the dividend nearly sixty percent. Let's go to Charlie Pellett in the Bloomberg newsroom for Bloomberg Business and I thank you, Pim, thank you, Kathleen.

Rio shares up four tens or one percent. Pim and Kathleen will be talking about the one d forty three year old mining giant, has cut costs, reined in spending, and sold underperforming assets in a bid to whether the commodities crisis sparked by China's slowing growth and a glut of raw materials. Rio is led by CEO Jean Sebastian Jack, and he spoke this morning with Bloomberg Television. Astragi is

very simple. It's about two elements. One is about the quality of the portfolio, what we call t you know, large, low cost. We have lots of optional eighties in Samso proof. And it's about perference. We are very clear we want to give compelling returns. Four shoulders in the shout, medium and long term. Crude oil trading higher up four point two percent, up a dollar sixty four West Texas Intermediate now at forty one fifteen barrel Brent up three point

four percent. ADP says companies added workers to American payrolls at a steady pace from the prior month, showing the uper market was holding up in spite of broader growth numbers that indicate a slowing in the economy. ADP said private payrolls climbed by one hundred seventy nine thousand. Last month, we will have the job's report eight thirty am. Wall Street Time complete coverage heading into coming out of that job's number. SMP up three to sixty a game there

of two tenths of one percent. To Dow up eighteen, a gain of one tenth of one percent, NAS Stack up seventeen, a gain of three tenths of one percent, Gold down eight dollars anounced the thirteen sixty, a drop there of six tenths of one percent. It is three thirty two on Wall Street. Now, let's take a look at some of the other stories making news. Thank you Charlie from the Bloomberg News Room. I'm Jill Schneider. This news update is brought to you by Blue Jeans Enterprise

Video Cloud. See Faces, Emotions, Energy, see two people your team's video from any device. Start a free thirty day trial at blue Jeans dot com and click the radio Mike. Blue Jeans Work Smarter, Connect Better. The Obama administration is reacting to the arrest of a veteran police officer in Washington, d C. Thirty six year old Nicholas Young of Fairfax was arrested at DC police headquarters this morning, he's accused of trying to send codes for mobile messaging cards to

foreign fighters. White House Press Secretary Josh Ernest his officials are mindful of the risk posed by homegrown extremists. We know that part of the strategy that is used by extremist groups around the world, including ISIS, is to use social media to try to recruit followers and countries around the world. We know that certainly is truer in the United States as well. Young had been on the police

force for twelve years. Florida Senator and former GOP presidential candidate Marco Rubio is calling on Congress and President Obama to do more to fight ZEKA. I believe it won't be long before other jurisdictions, other states, and other communities in the state and in this country will face the same situation, and so I hope that this is a wakeup call to my colleagues, and I reiterate my call

for Congress to act quickly. Outgoing NYPD Commissioner Bill Brandon and his replacement, James O'Neill, joined Mayor Bill de Blasio at the annual National Night Out event Tuesday to announce the expansion of the Neighborhood Coordination Officers Program. It's designed to put cops in specific communities to identify and respond to problems and make officers a bigger part of the areas they serve. Global news twenty four hours a day, powered by more than journalists and analysts in more than

one twenty countries. I'm Jill Schneider, and this is Bloomberg, Charlie, and we thank you and again recapping the now the SMP nestack called Advancing twenty six minutes to go ahead of the clothes. On a Wednesday, SMP five hundred index up three, a gain of two tenths of one percent. I'm Charlie Pellett and that's a Bloomberg Business flash stock with Kathleen Mays and Pim Fox on Bloomberg Ringox very special show today, broadcast live in Boston from Smith and

Lydsky Restaurant. Mike Alliston joins us now. He's vice president Equity portfolio manager Eaton Evans Management. In fact, he is the manager on the eating Vans Global Income Dividend Builder Fund. He's here to tell us how we can pick some good dividend funds, some good dividend paying stocks. At a time when they've gotten more expensive relative to the broader market, but still looking pretty good when you look at trying to build income through any kind of bond these days. Mike,

welcome back to the show. Thanks thanks for having me. So glad you could join us on this beautiful day. It's a beautiful, a beautiful day here in Boston. I think the last time we were here, you guys were up in um Our offices on the roof deck and broadcast from from there at International Place. What was a beautiful day then too. So you're you're good luck, Mike Allison. But so what about how you're you're viewing the markets? I mean, is it tougher to be an income builder

through dividends these days? Well, I think um number one in terms of just sort of the market backdrop of We've been fairly surprised at how uh steadily the wall of worry has been climbed. You know, there's a lot to worry about Chinese situation, Brexit, election uncertainty, economic concertainty, fed policy, all those sorts of things, and yet the market has just continued to, you know, to march upward UM in relatively sanguine fashion. You know, the VIX is low,

a lot of the other indicators are low. So what's going on in terms of the behavior of the market is it doesn't really match some of the angst that's out there, and not only any across the economy, but even amongst professional money managers that have lots of cash, uh, still to worry about how to put to work, and

so that is a is a challenge. Um. The you know, sort of focusing on on dividends, we we think of dividends is and truly the portion of the return, you know, And and so to the extent that you're invested in quality companies that have strong franchises and strong balance sheets and can sustain dividends, um, even if the yield is lower than some of the ones where there may be dividend risks you mentioned earlier, Kim Um. You know, I think being able to grow dividends and sustain them is

really what makes for a good stock. So it's a combination of income as well as capful appreciation with makeup total return. All right, Just to put it into some context here, taking a look at the dividend yield of the S and P five right now, two point one per cent the ten year trades at one point five three per cent. You factor in inflation, let's just add in food and energy just for kicks, let's right, and and you know two percent, you're you're basically a negative

rate of return. Yeah, in in in real terms term, that's some would some would argue that, uh, and that's that's kind of I think feeds the the perception that the particularly in the US stocks are really expensive, but yet relative to other asset classes. UM. This is on this this this kind of acrodym that we talk about, Tina, there is no alternative. Equities are the only place to be.

And so I think in the search for yield and income replacement versus other asset classes, I think that's why you've seen several of the highest yielding sectors in the um UH in the market become very expensive, you know, utilities and consumer staples for example. What what war is going with this was that the idea that people should not necessarily just look at the dividend yield, because just as I was mentioning Rio Tempto earlier, you going to look for a big, fat yield and you think, g

how can they pay this yield? This can this is too good to be true. Chances are probably is too good to be true. Well, I think that that goes to you know mentioned before, cash flow generation, fundamental UH, franchise strength, balance sheet strength UM. One of the things that that we've done, because we focus a lot on on equity income investing diviendated income UH is we took a look at the SMP five hundred and ranked the SMP five hundred by UH by dividend yield and put

those into quintiles, and you'd be surprised. You may be surprised to know that it's actually the second quintile of dividen yield, not the highest yielders, but the second quintile

that actually outperforms all the other quintiles. And so that's sort of a reflection of maybe attractively valued companies with with modest but strong UH dividends and strong franchises and they actually outperform with lower with lower volatility, so higher risk adjusted returns in that strata of the market versus going and chasing the highest yields because they may not

be secure. It sounds very attractive. I want to point out something that are Bloomberg Intelligence team that looks at dividends. Their global latest global dashboard talks about nineteen nineties stars like IBM, S and Cisco leading a certain the infect is the first trust NASDAC Technology Dividend Index fund to a record high. How do you feel about those kinds of companies when it comes to dividends? Are that are that? Are they the first core quintile or the highest one

used to avoid? Are they somewhere in the middle and looking a little bit more attractive? I would say I would say that some of the more mature technology companies are a really good place to be because they do have very strong cash flow characteristics and good strong balance sheets and relatively strong franchises versus other parts of the mortorcixical parts of the economy. And so that is that is an area where we have a lot of interest in terms of being able to uh to focus on

on that. Allen, want to thank you very much for coming by and spending time with this. Michael Allison. He is the vice president and Equity portfolio manager for Eaton Events Management, based here in Boston Course home to Bloomberg twelve hundred. Thanks for thanks very much for having me. Appreciate my pleasure. How We are broadcasting from Smith and Woolenski's at Atlantic Wharf at Boston Harbor. This is taking Stock.

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