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Markets Monthly April 2019Video

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Video ADA Text: Video transcript: What you want to know about dividends video

Transcript Browser Title: Markets Monthly April 2019 - What you want to know about dividends video

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Transcript: <h2>Legal disclosures:</h2> <p>INVESTMENT AND INSURANCE PRODUCTS ARE:</p> <p>• NOT FDIC INSURED.</p> <p>• NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY.</p> <p>• NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES.</p> <p>• SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.</p> <h2>On screen:</h2> <p>A montage of European, North American, and Asian cities - interspersed with different images, including: stock market ticker tape displays; Big Ben; pedestrians on crowded city streets; and the Golden Gate Bridge. Then, text appears on screen.</p> <h2>Text On screen:</h2> <p>Markets Monthly –</p> <p>What You Want To Know About Dividends.</p> <h2>On screen:</h2> <p>Jake Manoukian, an executive with black hair, sits by a wall-sized window with Mr. Caffrey, an executive in a navy-blue business suit.</p> <h2>Text On screen:</h2> <p>Jake Manoukian. Investment Strategist, J.P. Morgan Private Bank.</p> <h2>Mr. Manoukian:</h2> <p>I am so excited to have Jack Caffrey here with us this month. Jack, thank you for joining us.</p> <h2>Text On screen:</h2> <p>Jack Caffrey. Portfolio Manager, J.P. Morgan Private Bank.</p> <h2>Mr. Caffrey:</h2> <p>Thank you.</p> <h2>Mr. Manoukian:</h2> <p>Jack has been with the firm for 18 years, running an equity strategy. And today, I wanted to talk to him about dividends and dividend growth. When most investors think about dividends in their portfolio, they like it because it means real cash flow to them. But you have a little bit of a more nuanced way of thinking about it that I want to explore. So, what does dividends and dividend growth really tell you about the health of a company?</p> <h2>Mr. Caffery:</h2> <p>Well, we think dividends can offer three really important signals to an investor. The first is that the earnings the company is reporting are real, which is to say it’s really hard to fake a check that you have to write to your investors every quarter or every year. The second thing, we think the dividends actually force management to make better decisions. Once you’ve made that commitment to pay a dividend, you have to be a bit more careful in how you invest the company’s assets. Lastly, we think dividends are a real sign of partnership, that management views its investors as their partners in the business. And so, as the business becomes more valuable, they should share that growing wealth with their investors rather than just as a capital provider.</p> <h2>Text</h2> <h2>On screen:</h2> <p>WHAT DO DIVIDENDS SIGNIFY?</p> <p>Verify company earnings.</p> <p>Force management to make better decisions.</p> <p>Partnership with investors.</p> <h2>Mr. Manoukian:</h2> <p>Right. So, it’s really a sign of the health of a company and really a signal about how they view their investors in the company.</p> <h2>Mr. Caffery:</h2> <p>The health of the business, the health of the reporting, and the health of the relationship ultimately with the markets.</p> <h2>Mr. Manoukian:</h2> <p>Great. So. once you identify a company that does pay a dividend, how do you think about the portfolio?</p> <h2>Mr. Caffery:</h2> <p>The first is trying to have a portfolio yield above that of the market. That provides some stability on a day-to-day basis. The second way we tend to think of it is looking to dividend growth driving capital appreciation over time. If, say, your dividends, your cash flow as an investor are growing at 7% to 10%, we think it’s reasonable to think that prices of that company could be rising in line with that cash flow to you. And lastly, we think that you can try to look for situations which might be seen almost as underestimated or underappreciated in the market, with the idea that, as investors come to better understand the business and the cash flows they might get from it, they might more appreciate it, and you might get a little bit more of a gain on top, as well.</p> <h2>Text On screen:</h2> <p>WHEN CONSTRUCTING A PORTFOLIO, FOCUS ON:</p> <p>- 1. Yield.</p> <p>- 2. Dividend Growth.</p> <p>- 3. Underappreciated Areas of Market.</p> <h2>Mr. Manoukian:</h2> <p>So, I like that concept of dividend growth because sometimes it’s not enough just to have a high absolute dividend yield. Really, the growing dividend is, seems to be a little bit more indicative about the underlying health of the business.</p> <h2>Mr. Caffery:</h2> <p>Sure. I mean, ultimately, if you take a truly longer-term perspective, and by that, I mean sort of multidecade, whether that’s funding a college, funding a retirement, or trying to change the world. What you’ve gotten as an equity investor has ultimately been earnings, and it’s been dividends being paid out of that growing earnings stream. So, it’s really important to think about the stability and, ultimately, the relevance of the businesses you wind up looking to invest in.</p> <h2>Mr. Manoukian:</h2> <p>So, I mentioned before that you’ve been following markets for 18 years. You’ve been investing through a lot of different periods or kind of cycles. What gets you excited now in markets?</p> <h2>Mr. Caffery:</h2> <p>What we find really exciting right now is what’s going on in the technology industry, in particular. We’ve got so many interesting things going on with whether it’s the rise of cloud computing, whether it’s the evolution from fourth generation to fifth generation wireless. There’s so much going on there.</p> <h2>Text On screen:</h2> <p>What's exciting now: Technology.</p> <h2>On screen:</h2> <p>A montage shows the inside of a vast data storage center; somebody switching on a Wi-Fi system; and two men speaking on a video call.</p> <h2>Mr. Caffery:</h2> <p>And, ultimately, these have been historically very good growth businesses. And now that the sector itself is becoming a little bit more mature, that it’s becoming one of the largest cash returners in the market, we think that winds up making it even more compelling for an investor’s perspective.</p> <h2>Mr. Manoukian:</h2> <p>So, I’ve even heard you say that if you don’t like tech, you don’t like the market. Can you expand on that concept a little bit?</p> <h2>Mr. Caffery:</h2> <p>I think that’s really simple, but yet, you know, perhaps revealing. Tech is about 21% of the market today. And so, when you think about the market, the largest and most important sector is technology. If you don’t like 20%, it’s kind of hard to like the whole.</p> <h2>Mr. Manoukian:</h2> <p>Got it. So, what keeps you up at night? What are you worried about in terms of the investment landscape?</p> <h2>Mr. Caffery:</h2> <p>I worry about two things. One is I’m the parent of two teenagers, and so that naturally makes for a slightly uneasy sleep. But from a markets perspective, I worry about liquidity. We’ve benefited from markets that have been largely supported by no one wanting to take the other side for more or less the last eight years. December was a little bit of a taste of what happens when people decide to be selling in a time with perhaps less liquidity in the market. And I think that resulted in some investors wondering what’s the right risk tolerance in their portfolios, and whether they’ve actually positioned themselves accordingly for what might make more sense for a perhaps later-cycle environment.</p> <h2>Mr. Manoukian:</h2> <p>Right. And a way an investor can deal with that risk of heightened volatility due to lack of liquidity is investing in those companies with that consistent cash flow stream that a dividend provides.</p> <h2>Text On screen:</h2> <p>Dividends provide consistent cash flow and can ease investors’ angst in times of volatility.</p> <h2>Mr. Caffery:</h2> <p>Very much. And knowing you’re gonna get some money, every three months, every six months, helps you sleep a little bit better at night.</p> <h2>Mr. Manoukian:</h2> <p>Great. Jack, thank you so much for taking the time.</p> <h2>Mr. Caffery:</h2> <p>Thank you so much for having me.</p> <h2>On screen:</h2> <p>Mr. Manoukian turns to address US.</p> <h2>Mr. Manoukian:</h2> <p>And thank you all for watching. We’ll see you next month, in May.</p> <h2>Logo On screen:</h2> <p>J.P. Morgan.</p> <h2>Text On screen:</h2> <p>This material is for information purposes only, and may inform you of certain products and services offered by J.P. 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