The Dividend Corner: 3Q2025 Mid-Market Update cover art

The Dividend Corner: 3Q2025 Mid-Market Update

The Dividend Corner: 3Q2025 Mid-Market Update

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 Nicholas Puncer: Hi, I'm Nick Puncer, Portfolio Manager and member of Bahl & Gaynor's Investment Committee. Welcome to the Dividend Corner It's August 2025, and for this quarter's mid-quarter update, fresh off of earnings season, we're going to be speaking with fellow Investment Committee member and Bahl & Gaynor's Chief Investment Officer, Pete Kwiatkowski. Thanks for your time today, Pete. Pete Kwiatkowski: Thanks, Nick. It's great to be here. Nicholas Puncer: Pete, one could argue that markets today look much the way they did at the end of 2024. They're concentrated, got pretty high valuations, and perhaps the market's vulnerable to small changes in the growth narrative. But investors have been handsomely rewarded for being invested in equities over the last 15 plus years. Now, as equity investors ourselves here at Bahl & Gaynor we don't want to come off as bearish on equities, but maybe a good place to start is talking about the role of risk management and how we manage our strategies given the market backdrop. Pete Kwiatkowski: Yeah Nick, it's a great place to start since paying attention is at the center of our investment process. Our process is designed to put downside protection potential along with inflation beating dividend growth at the center of our portfolio construction and management. We want downside protection potential to be a perennial characteristic of how we invest. Investment environments can change so quickly as we have seen. So, I believe the emphasis that we place on risk as a firm differentiates us. And while equities, as you said, they've done a tremendous job generating wealth for investors over the long run, our timing for this discussion, I feel, is a bit more precarious than usual. If you look since 1999 or mid 1999, over the last 25 plus years, there are only handful of observations where we've seen forward PEs greater than what we've had today, 22 times earnings. And of those handful of observations, all of them have produced negative forward five year returns. So what we saw in the first quarter culminating with the early April drawdown, as well as the recent volatility around the July non-farm payroll release, those were good real world signals that we were appropriately positioned across our strategies to deliver the downside protection potential that we target if you look at how we performed. This primary focus on risk has led our strategies historically having a risk profile with lower volatility than their respective benchmarks. We feel that allows our clients to potentially consider a higher allocation equities in their portfolios than they otherwise might be comfortable with. And we feel, as you know, this can help our clients build more wealth over the long run. It's a good starting point and good context from a risk perspective. Nicholas Puncer: I wonder if we can double click on that risk element and talk a little bit about how we incorporate risk management specifically into our approach, maybe from a company selection or a portfolio construction standpoint. Pete Kwiatkowski: Yeah, sure, so, I think again, I'll double click on the point that we most when you think about stocks, you just think about returns, right? So, we spent from the very beginning when we're looking at stocks, and then how the stocks roll up to the sector and the portfolio, we pay very close attention to how that stock performs when the market goes down or downside capture. We're always looking at volatility and beta. So we have to respect risk first and not just chase returns, which as you know today is extremely tempting. So, what we're looking for within our dividend growth universe, we aim to own the best companies that meet our requirements within that. And while we're keeping portfolio risk within our constraints. So, you know, one big point within that is a stable company that leads its peer group and possesses competitive advantages is something that we would love to invest in. And the main thing there is that those types of companies tend to defend very well when the market declines. To us, that's as valuable as fast-growing companies can be. Nicholas Puncer: Yeah, absolutely. Yeah. I'm reminded of a quip that think Warren Buffett made where if you have $100 and you lose 50%, it's really unfortunate because you need 100 % return to get back to even. But, if with that same hundred dollars, maybe you lose 25%. You only need a 33% return to get back to even. So, while the return is important on the upside, you know, we're really focused on trying to constrain that downside risk element to keep the capital employed for recovery. Pete Kwiatkowski: A lot of what we do, Nick, is it's behavioral, right? Human beings were all wired to look for returns first. Yeah. We want, we want to chase those returns at times. The great thing about our firm is you know we've been focused on dividend growth for 35 years now and it's just ingrained in who we are so there's no question at this ...
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