Cabot’s Newest Advisory
Interview with Chloe Lutts Jensen
A Chinese Growth Stock
Cabot will be launching a brand new advisory at the end of January. Cabot Dividend Investor will be aimed at income investors and will offer ways to customize your income portfolio for your income needs, your investment life-stage and your risk tolerance.
I sat down with Chloe Lutts Jensen to get her thoughts on what Cabot Dividend Investor will cover, who it’s appropriate for and how she will make her selections. Here’s a slightly edited transcript of that interview.
Paul Goodwin: You’re just about to launch Cabot Dividend Investor, the latest addition to the Cabot family. Cabot doesn’t often start brand-new advisories, so this is kind of a big deal. What’s it all about?
Chloe Lutts Jensen: Investors have always counted on bonds to protect their capital and generate predictable income. But bond yields have been terrible since the Fed started stimulating the U.S. economy in 2008, and that has forced investors to take on more risk just to keep their retirement accounts even with inflation.
Cabot Dividend Investor is our answer to the question we’ve heard a lot from Cabot subscribers: How can we get some income to keep our retirement account healthy without taking on a ton of risk?
Paul: So what will Cabot Dividend Investor do for readers?
Chloe: The general answer is that Cabot Dividend Investor will give subscribers specific advice on buying and holding dividend-paying stocks.
But the more important service is that Cabot Dividend Investor will help subscribers to customize their income portfolios based on how close they are to retirement and what their current income needs are.
Paul: How do you do that?
Chloe: Cabot Dividend Investor has three related objectives: safety, dividend growth and current income. I’ve figured out how to let subscribers mix and match our recommendations to meet whatever combination of these objectives is most important to them personally. Some may choose to pursue only one or two of these goals while some may mix investments to secure all three.
Paul: How does this fine-tuning work?
Chloe: Well, our portfolio is dividend into three different tiers, called Safe Income, Dividend Growth and High Yield.
Safe Income-tier stocks are low volatility common stocks with a long history of paying dividends. Occasionally the group may also include some low-volatility exchange-traded funds (ETFs), closed-end funds and fixed-income issues like preferred stocks.
Then the Dividend Growth tier is made up of common stocks with a history of dividend growth, like Target (TGT), and common stocks with good potential for future dividend growth. It also considers other vehicles with a dedication to dividend growth, including REITs (real estate investment trusts), BDCs (business development corporations) and ETFs and CEFs.
Finally, the high-yield tier of our portfolio focuses on investments that are paying a high dividend right now. In addition to common stocks, this is where you’ll find many of the portfolios CEFs, MLPs (master limited partnerships), REITs and BDCs.
The tier assignments and IRIS ratings will give subscribers the information they need to shift the balance of their income investments to suit their individual needs. Someone who wants the highest level of capital preservation will stick to investments in the Safe Income tier with their long dividend histories and low volatility. Someone focused on immediately getting the biggest dividend checks will push toward the high-yield tier with its maximized current yield. And those who have time to wait will be drawn toward the dividend growth tier, which has the highest future potential.
Paul: I’ve heard about IRIS when you’re talking about Cabot Dividend Investor. What’s that?
Chloe: IRIS stands for Individualized Retirement Income System. It’s a proprietary Cabot system that rates our universe of income-generating investments on the safety of their dividend and the likelihood of future dividend growth. Then we choose the best investments for our portfolio based on quantitative and qualitative factors like yield, technical action, industry strength, portfolio diversification, valuation and other factors.
So, Cabot Dividend Investor is the advisory itself; IRIS is the system we use to evaluate and pick our recommendations.
Paul: How is this different from Dick Davis Dividend Digest?
Chloe: The Dividend Digest is a great source of lots of ideas for income investors who already have a solid investing strategy. Cabot Dividend Investor will make fewer recommendations than the Digest, but it offers a more complete package for an investor who wants guidance on how to combine those recommendations and how to tailor a strategy to their investment objectives.
Paul: I feel like a game-show host, but can you tell me what subscribers will get?
Chloe: Well, Paul, Cabot Dividend Investor will be published as a PDF on the last Wednesday of the month, with weekly email updates every Wednesday in between. Each issue will take a close look at one stock, either a new buy or a current holding that’s a good buy that month.
The advisory will have a Model Portfolio divided into the three tiers: Safe Income, Dividend Growth and High-Yield. Most subscribers won’t hold all the positions in the portfolio, they’ll choose group of holdings that best fits their goals. For our part, we’ll track the performance of the total portfolio as well as a more “aggressive” allocation and a more “conservative” one.
Cabot Dividend Investor will begin with just a partial portfolio, so charter subscribers will be getting new buys for at least the first few months. After that, I’ll let market conditions be my guide to adding new holdings and shifting others out of the portfolio. The amount of trading won’t be high.
Along the way, I’ll also discuss related topics like tax implications of certain kinds of investments (like Master Limited Partnerships) and holding income stocks in Individual Retirement Accounts (IRAs).
Paul: It sounds good to me, although I’ll probably stick with growth investing.
Chloe: Who knows, we may pull you in yet!
To learn more about Cabot Dividend Investor, the successful system behind it, and how it can help you boost your portfolio returns, click here now.
For my own stock pick this week, I’m tempted to pick an income stock, of course. Chloe is very persuasive.
But when push comes to shove, I’m pretty much a growth investor down to my toes, so I guess I’ll stick with what I know.
The stock I’m recommending is SouFun Holdings (SFUN). SouFun owns and operates the biggest real estate website in China, and the Chinese real estate market continues to be red-hot. That’s basically the story for SouFun, a company founded in 1999 that offers website advertising to developers and agencies, listing services to agents, brokers, developers and property managers and value-added services via subscription.
SouFun’s website and databases cover more than 320 Chinese cities, and the company has about 100 offices that focus on the needs of local markets. Revenue, which comes from ads, subscriptions and specialized listing services that include customized marketing programs, grew just 25% in 2012, as the Chinese government tried to cool the property business. But quarterly growth in 2013 has been much stronger: 56% in Q1, 49% in Q2 and 45% in Q3. After-tax profit margins hit an impressive 52.2% in Q3, with quarterly earnings hitting an all-time high.
There is risk in SouFun, as the Chinese government has a great deal of power to chill real estate transactions if it thinks the market is overheating. But SouFun has shown that it can supply a valuable service that is finding eager users.
And I don’t think I’m violating my preference for growth stocks if I point out that the company’s stock pays a dividend with a forward annual yield of 2.8%!
And the stock has been a rocket-shot since it broke out of a base at 25 in July and topped 90 just this week.
Lots of investors have been finding out that Chinese stocks are on fire at the moment. And the portfolio of Cabot China & Emerging Markets Report reflects that enthusiasm. If you’d like to see other stocks like SouFun Holdings that combine great stories with sizzling performance, you should check out a no-risk subscription.
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report