Federated Investor's Q3 international strategic value dividend account commentary reivews the affect of August volatility and the ability of their strategy to provide a substantially higher-than-market yield and long-term dividend growth.
"Market Overview"
Equity markets pulled off their August low but were still down on the month, closing out their worst quarter in four years as investor fears over China, lower oil and a potential global slowdown outweighed generally better economic data at home.The Federal Reserve added to the uncertainty and volatility, choosing to put off liftoff at its September meeting, rattling the markets even though futures had put the odds of a move at well below even.
On the economic front, much of the news was good.The final read on second-quarter GDP revised growth up again to 3.9%, led by a big jump in consumer outlays. Sentiment and confidence data also surprised to the upside, suggesting Main Street wasn’t all that wrapped up in the events that were shaking up Wall Street.The Philadelphia Fed’s gauge of states showed growth accelerating in 41 states; state and local tax revenues also suggested broad improvement, with individual income taxes rising at their fastest pace in almost two years. Meanwhile, uncertainty loomed outside the U.S. as China’s manufacturing sector contracted for its second straight month, heightening concern around how its major trade partners would cope with a protracted slowdown in demand for raw materials.
August nonfarm payroll growth disappointed somewhat but it’s a quirky month that historically has experienced significant upward revisions. Jobless claims were still very low, and September’s ADP payroll survey came in at a better-than-expected increase of 200,000 jobs. Elsewhere, auto sales remained very strong and housing’s momentum continued, with new home sales hitting a 7-year high and permits keeping the construction pipeline filled going into fall.The only fly in the ointment was manufacturing, where a stronger dollar and energy cutbacks continued to weigh on exports and overall activity.
Performance and Strategy
While global stock markets reacted intensely to speculation around the timing of “Fed liftoff,” a weaker Chinese economic outlook and broadening uncertainty surrounding global economic growth, the Federated International Strategic Value Dividend ADR SMA portfolio continued to focus on its objectives of providing a substantially higher-than-market yield and long-term dividend growth. In the third quarter of 2015, the portfolio continued to deliver on those objectives.The strategy finished Q3 with a weighted average stock dividend yield of 4.8%, which was well ahead of the 3.3% weighted average stock dividend yield for the international broad market, as represented by the MSCI EAFE Index, and just below the 5.2% yield provided by the MSCI EAFE High Dividend Yield Index. Consistent with the strategy’s dividend growth objective, five portfolio holdings announced dividend increases in Q3. U.K.-based holdings Diageo, Pearson and British American Tobacco all raised their distributions in the quarter, delivering hikes of 9.1%, 6.1% and 3.5%, respectively.Tobacco holding Philip Morris International also raised its dividend by 2.0% in the period.And Canadian bank holding CIBC increased its dividend for the fourth time in the trailing 12 months, providing a year-over-year dividend growth rate of 12.0%.Year to date, 24 portfolio holdings have announced dividend increases, along with one reduction.Additionally, one company within the portfolio, GlaxoSmithKline, declared a special dividend that will be payable in 2016. It is also worth noting that portfolio companies customarily declare and pay dividends in their local currencies. The fluctuation of exchange rates can either positively or negatively impact the year-over-year dividend growth that investors ultimately realize in U.S. dollars..." download below to read full report.
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