The Invesco Diversified Dividend Fund: Our Analysis and Rating (LCEAX)

By: ,

Diversified Dividend Fund

Featured Image Source: Invesco Company Website

The Invesco Diversified Dividend Fund (NYSE:LCEAX) primarily invests in dividend-paying securities. The fund’s managers use various valuations methods to seek out equities that appear undervalued and poised for medium and long-term growth.

While the Invesco Diversified Dividend Fund invests the majority of its funds in common stock of United States-based equities, the fund’s management might choose to allocate up to 25% of the fund’s total net assets into foreign securities. As of February 7, 2019, the fund had nearly $4.9 billion in total assets spread across 70 individual holdings.

----ADVERTISEMENT----

The fund’s dividend payout amount fell in 2008 and 2009 as a result of the financial crisis, but the annual dividend distribution amount is trending higher overall. The fund’s total annual dividend payout rose in nine out of the 15 years since the fund started distributing dividends.

In addition to the generally rising annual dividend distributions, the Invesco Diversified Dividend Fund doubled its share price from its inception to its all-time high in January 2018. As the market pulled back on concerns over the trade war with China and potential interest rate hikes by the U.S. Federal Reserve, the fund’s share price pulled back slightly last year and especially in the fourth quarter of 2018. However, the share price has been on a steady upward trajectory since the beginning of 2019. Also, the pullback in late 2018 was only the share price’s third significant correction since Invesco Diversified Dividend Fund listed its shares on the New York Stock Exchange (NYSE) in January 2001.

 

Holdings

As of February 8, 2019, the Consumer Staples sector is the most represented sector with 23% of total assets. With the 18.3% share contributed by the Utilities sector, the top two sectors account for more than 40% of the fund’s total assets. The Financials sector contributes another 13% of assets which puts the share of these top three sector above 54% of total asset.

Furthermore, the top five sectors — including Industrials with an 8.8% share and Health Care with and 8.5% share — the top five sectors comprise more than 71% of the fund’s assets. Additionally, the Invesco Diversified Dividend Fund has 94.2% of its assets currently invested in common stocks, with remaining 5.2% sitting in cash and various cash equivalents. The chart below that indicates the full asset share breakdown by sector also shows that the fund’s assets comprise investments in all 11 Global Industry Classification Standard (GICS) sectors.

----ADVERTISEMENT----

Diversified Dividend Fund

The top two industries — Electric Utilities with a 12.28% share and Packaged Foods & Meats with an 8.59% share — combine for more than 20% of the fund’s total assets. The table below shows the top 10 industries represented in the Invesco Diversified Dividend Fund. These top 10 industries account for an aggregate 62% of total assets.

Diversified Dividend Fund

Companies

The Coca-Cola Company (NYSE:KO) was the top individual holding with a 3.34% share of total assets. AT&T, Inc. (NYSE:T) with a 3.17% share and the Exelon Corporation (NYSE:EXC) with a 2.76% rounded out the top three holdings. These top three holdings combined for nearly 10% of the fund’s total. The total assets share by the top five individual holdings exceeded 15%. Furthermore, the top 10 individual companies by share of assets listed in the table below combine for nearly 27% of the fund’s total. Also, more than half of the fund’s total assets comprised of just the top 23 23 out of the 70 holdings. The table below contains a list of the top 10 holdings.

Diversified Dividend Fund

Dividends

The Invesco Diversified Dividend Fund began distributing dividends in March 2003. The fund’s total dividend payout timing and total distribution amounts are equivalent to the dividend distributions aggregate of the underlying holdings. Without any control over dividends, the fund only funnels dividend payouts of its underlying holdings to its stakeholders. Therefore, the quarterly dividend payout amounts fluctuate, which makes it difficult to establish clear trends.

As the graph below indicates, the overall direction was trending up over the first five years after dividend establishment. Because of the overall market decline during the financial crisis, the fund’s total annual dividend payout dropped more than 80% in 2008 and another 25% in 2009 for a total decline of 87% over those two years. However, the dividend distributions began rising in 2010 as the overall market started to recover. Since the dividend low in 2009, the fund’s total annual dividend payout amount rose in six out of the past nine years and reached its all-time high of $1.352 in 2018.

Diversified Dividend Fund

The Invesco Diversified Dividend Fund distributed its most recent dividends on December 14, 2018. Based on the fund’s past pattern of dividend payments, investors should expect the next round of dividend distributions in mid-to-late March 2019. However, interested investors should not delay conducting their own research too long. The Invesco Diversified Dividend Fund generally declares the dividends only one day before the ex-dividend date and the pay date follows another day or two later. Therefore, investors interested in collecting dividend distributions during the next round of dividend payouts should purchase shares of this fund no later than the first week of March 2019 to ensure eligibility for the first quarter dividend distributions.

 

Current Distributions

The fund’s most recent regular quarterly dividend income payment of $0.1605 is 19.4% above the $1.344 dividend payment from the same period last year. However, combined with all special and one-time dividend disbursements, the fund’s total dividend income distribution of $1.352 is 163% above the $0.514 total dividend payout in 2018 and 18% higher than the previous annual dividend high of $1.146 distributed in 2007 prior to the financial crisis.

The $0.1605 current regular dividend corresponds to a $0.642 annualized distribution and a 3.4% forward dividend yield. This current yield outperformed the fund’s own 2.9% average yield over the past five years by nearly 20%. Furthermore, the fund’s current 3.4% dividend yield is more than 7% above the 3.2% simple average yield of the overall Financials sector.

 

Share Price

While advancing admirably since the fund’s inception, the share price growth flattened in early 2018 and reversed direction at the end of the year. The share price traded relatively flat in the $19.50 to $20.50 range for the first 10 months of the trailing 12-month period. From the onset of this trailing period, the share price advanced less than 7% before reaching its new all-time high of $20.66 on August 29, 2018. By the beginning of December 2018, the share price had already pulled back 3% from its August peak. However, following that minor pullback, the share price plunged more than 16% over the first three weeks in December to bottom out at $16.81 on December 24, 2018, which was the lowest share price level in nearly three years.

However, since bottoming out on Christmas Eve, the share price reversed direction and rose to close at $18.74 on February 8, 2018. While still more than 9% short of its high from August 2018 and 3.3% down over the trailing 12 months, the February 8, 2019 closing price was 11.5% higher than its 52-week low from late December 2018 and 10% higher than it was five years ago.

While the share price declined 3.3% over the past year, the 3.4% income just from regular dividends offset those losses. However, combined with special and one-time dividend distributions, the total dividend yield was more than 7.2%, which resulted in an overall total return on stakeholders’ investment of 3.7% over the past year. The stakeholders also enjoyed a 27% total return over the past three years and a total return of nearly 40% over the past five years.


Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.


Ned-Piplovic

 

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.


 

STOCK OF THE WEEK
Use it to collect annual stock market gains of 63%... in about 5 minutes a week!
X
X
X

Search Dividend Investor