Quarterly Update

David J. Abella, Managing Director, Senior Portfolio Manager | Jan. 2021

Dividend Stocks: 2021 Looks to Be Much Brighter

Focus on income from companies with opportunities for dividend growth

Continue to look for new opportunities as we move through this cycle

Let solid yields and compounded growth drive longer-run returns, with help from potential equity appreciation

As we enter into the new year of 2021, we look to improved investment outcomes for our dividend stocks driven by several factors. First, given the success of new vaccines, there is a light at the end of the tunnel despite some wobbles with the rollout. This improvement and eventual move to normalcy should greatly help broader areas of the economy, including many areas in the dividend investment universe. Second is the prospect for increased government spending, which should help broaden the recovery and also benefit many companies in the dividend universe. Finally, there is an overall improvement in business and consumer sentiment.

Last year, our dividend research team focused on owning stocks that could maintain their dividends through the downturn, including those in “essential services” industries. In addition, strong balance sheets with reasonable payout levels were (and are) important. Given the factors above, we have increased the forecast returns going forward to the 6-10% range (see chart) and with higher confidence.

As the recovery builds throughout the year, we anticipate that dividend growth (the theme of our investing thesis pre-COVID) will again be paramount. We will be targeting companies with a dividend growth rate of 2-6% initially, with an expectation of 3.5% in aggregate. That would follow the 2% dividend growth realized for 2020. As momentum in the economy continues, we feel that this growth can hit 6% in 2022, which would be back in line with growth levels pre-COVID (ranging between 3% and 8%). Our expectations are for an upward growth in dividends coming off the 2020 plateau (see chart).

We believe that recovery in dividend stocks will be led with growth in yield as 2021 progresses, similar to years before the coronavirus pandemic.

Our view is that attractive yields of dividend stocks coupled with attractive valuations can also help drive solid returns over time, with a higher confidence in expected performance.

Key Points

Focus on income from companies with opportunities for dividend growth

Continue to look for new opportunities as we move through this cycle

Let solid yields and compounded growth drive longer-run returns, with help from potential equity appreciation

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Important Disclosures

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed.

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Alternative investments are speculative, entail substantial risks, offer limited or no liquidity, and are not suitable for all investors. These investments have limited transparency to the funds’ investments and may involve leverage which magnifies both losses and gains, including the risk of loss of the entire investment. Alternative investments have varying and lengthy lockup provisions. Please see the Offering Memorandum for more complete information regarding the Fund’s investment objectives, risks, fees, and other expenses.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. Investing in international markets carries risks such as currency fluctuation, regulatory risks, and economic and political instability. Emerging markets involve heightened risks related to the same factors, as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks and less developed legal and accounting systems than developed markets.

There are inherent risks with fixed-income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer-duration fixed-income securities and during periods when prevailing interest rates are low or negative. The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar income-bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax (AMT), and taxable gains are also possible. Investments in below-investment-grade debt securities, which are usually called “high yield” or “junk bonds,” are typically in weaker financial health and such securities can be harder to value and sell, and their prices can be more volatile than more highly rated securities. While these securities generally have higher rates of interest, they also involve greater risk of default than do securities of a higher-quality rating.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

Indices are unmanaged and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.

Alternative investments are speculative, entail substantial risks, offer limited or no liquidity and are not suitable for all investors. These investments have limited transparency to the funds’ investments and may involve leverage which magnifies both losses and gains, including the risk of loss of the entire investment. Alternative investments have varying, and lengthy lockup provisions.

CNR is free from any political affiliation and does not support any political party or group over another.

Index Definitions

Bloomberg Barclays Municipal Bond Index is a market-value-weighted index for the long-term tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least 1 year from their maturity date.

The Bloomberg Barclays Global High Yield Index is a multi-currency flagship measure of the global high yield debt market.

Indices are unmanaged and one cannot invest directly in an index.

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