Using a Fixed-Income Lens
In addition to common and preferred stocks that are conventional dividend-payers, the fund owns real estate investment trusts (REITs) and master limited partnerships (MLPs) that Los Angeles-based Payden & Rygel have thoroughly scrutinized on the fixed-income side, since REITs and MLPs are regular issuers of debt.
“We think this is a very attractive time for dividend stocks, even if valuations are a bit extended,” Wong said. “With interest rates so low, it’s hard to find attractive income, let alone growing income. But dividend stocks are doing it. Some are out-yielding their company’s bonds.”
Stocks for Income
“We haven’t seen anything like that in about 60 years,” he said. “The equity space is a very viable for income.”
Wong has whittled down the fund’s energy holdings and is rotating into the consumer discretionary, consumer staples and information technology sectors.
“In consumer goods, I really like Altria and McDonalds. Do I think they’re overvalued? When I think of overvalued, I think of growth names with high P/Es. When I look at the dividend market, I don’t see bubbles in companies that have above-average P/Es but are producing yields of 3%-5% in this environment,” he said.
Bullish on REITs, Down on Oil
“Credit standards are higher now, and REITs can still experience moderate dividend growth,” he said.
In energy, however, he sees a different picture. His fund now owns only two oil companies — ExxonMobil and Chevron — which he believes have the financial strength to weather the current downturn and continue to pay dividends.
“One company that can actually benefit is ExxonMobil,” he said. “They have liquidity, can tap the capital markets, and can acquire assets cheaply.”
Troubles in the oil patch, however, have made Payden & Rygel very cautious about MLPs, which once accounted for as much as 18%-19% of the portfolio, but are now down to 2% of the total, he said.
For Wong, directing his fund’s investments isn’t just a job, but a reflection of his deep conviction about how serious money should be invested. He notes that his own retirement money is in the fund, joking that he drinks his own “dividend Kool-Aid.”
Given his fund’s five-star rating over five years and its 12.43% annualized returns over that same period, it’s easy to see why so many investors feel the same way.