3 Dividend Income Investment Opportunities Featured at the Baron Funds Investment Conference
By: Ned Piplovic,
While Baron Funds is renowned for its focus on seeking and delivering long-term capital gains for its investors, the firm also offers opportunities for income investors to supplement their asset appreciation with dividend-paying equities.
In addition to Baron’s own funds that offer dividend income, the firm also included two dividend-paying companies among the four organizations featured the most recent Baron Investment Conference at the Lincoln Center in New York. The annual investor conference features several companies that, according to Baron’s financial advisors and analysts, have strong operational and financial fundamentals, as well as unique market insight or proprietary advantage to deliver long-term capital gains.
Of the four companies features at the 2019 investor conference, two do not distribute any dividends currently — Tesla, Inc. (NASDAQ:TSLA) and Space Exploration Technologies Corporation (SpaceX) — a private company founded in 2002 by Tesla, Inc. founder Elon Musk.
However, the Baron investor conference had something to offer income seeking investors as well. While these dividend-paying equities are not designed to deliver high dividend income, they do offer some income to complement their long-term asset appreciation.
FactSet Research Systems, Inc. (NYSE:FDS)
Headquartered in Norwalk, Connecticut, and founded in 1978, FactSet provides the investment community with a variety of analytics, services, contents and technologies for delivering integrated financial information. Over the past four decades the company has expanded steadily and has increased its annual revenue over the past 39 consecutive years. FactSet complemented this extended revenue growth streak with 23 consecutive years of adjusted earnings per share (EPS) growth.
The company’s current $0.72 quarterly dividend payout amount is 12.5% higher than the company’s $0.64 dividend payout from the same period last year. This new quarterly payout corresponds to a $2.88 annualized distribution. However, with the company’s share price approaching $260, the forward dividend yield is just 1.12%. While low compared to the overall market average yield of approximately 2%, FactSet’s current yield is 3.1% higher than the company’s own 1.09% average yield over the past five years.
FactSet introduced dividend distributions in 1999 and has boosted its annual payout every year since then. Over the past 19 years, the company has increased its total annual payout nearly 340%. This advancement corresponds to an average annual growth rate of 7.6%. Furthermore, the company has accelerated its dividend growth in recent years. The dividend growth rate over the past three years is just slightly below 13% and exceeds 13% over the past three years. The company’s 32% dividend payout ratio indicates that FactSet’s current earnings easily cover the dividend distributions, which leaves enough room to support the current dividend payout levels for the foreseeable future, as well as maintain or embellish its dividend hike rates.
While the dividend payouts offer a nice source of dividend income, the main driver of investor returns at FactSet have been capital gains. Just over the past five years, FactSet nearly doubled its share price and delivered asset appreciation of more than 20% over the trailing 12-month period.
As of September 30, 2019, FactSet Research Systems shares have been included in the Baron Asset Fund (NASDAQ:BARAX), the Baron Growth Fund(NASDAQ:BGRFX), the Baron Partners Fund (NASDAQ:BPTRX) and the Baron Focused Growth Fund (NASDAQ:BFGFX).
Brookfield Asset Management, Inc. (NYSE:BAM)
Currently headquartered in Toronto, Canada, and founded in 1899 as a family office, Brookfield Asset Management is a global alternative asset management firm that currently holds more than $500 billion in assets under management. The company owns approximately 2,000 private and public assets across 30 countries on five continents. Despite the global presence, the company’s holdings in North America represent nearly two-thirds of its total assets under management.
Brookfield initiated dividend distributions in 1997 and had boosted it annual dividend payout 16 times in the past 21 years, including the current streak of seven consecutive annual hikes. Since 2011, the company enhanced its annual dividend amount 84%, which is equivalent to an 8% average annual growth rate.
The company’s current $0.16 quarterly distribution is 6.7% above the $0.15 payout from the same period last year. This new dividend level corresponds to $0.64 annual distribution. The rapid share price advancement suppressed the current yield below the company’s own 1.34% five-year yield average.
Like FactSet, the bulk of Brookfield’s returns comprised of capital gains. Just over the trailing 12-month period, the company rewarded its shareholders with a total return of 38%. Over the past three years, investors enjoyed a 62% total return on investment and a total return of 82% over the last five years.
Baron Real Estate Income Fund (NASDAQ:BRIFX)
To answer requests from their investors for an income option, Baron established the real estate income fund in December 2017. This fund invests primarily in income-producing real estate securities without any market capitalization minimums. As an income seeking vehicle, the real estate investment trusts (REITs) account for three-quarters of the fund’s total assets.
As of Sept. 30, the remaining quarter of the fund’s assets comprised Consumer Discretionary stocks (13.2%), Information Technology (4.6%) and Utilities (3.7%) with 3% of assets in cash & cash equivalents. Americold Realty Trust (NYSE:COLD) and Invitation Homes, Inc. (NYSE:INVH) are the top two holdings with 6.8% and 6.7% of asset share, respectively. Top 10 of the 37 total holdings in the fund account for half of the fund’s assets under management.
The fund’s share price surge outpaced the dividend payouts growth by a wide margin, which limited the current yield to 1.06%. After the fund’s inception in late 2017, the share price declined 17.6% before reaching its all-time low of $8.24 on December 24, 2018. However, since bottoming out in late 2018, the share price has advanced more than 37% to close on October 29, 2019, at $11.32, which was jut two cents lower than the $32.34 all-time high from two days earlier. The tail end of the downtrend in 2018 limited total returns to less than 28% over the trailing 12 months. However, since the all-time low in late December, the fund returned combined gains from asset appreciation and dividend income of nearly 38%.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.