Morningstar - Q3 2022 - 57

dividend yields of at least 2% at purchase and
modest payout ratios. Kilbride focuses on
companies likely to grow their dividends, ideally
at the rate of inflation plus 3%.
The panel took place on May 17, and the discussion
reflects market and valuation information as of
that date. It has been edited for length and clarity.
Tony Thomas: When you think about your end investor,
who comes to mind?
Don Kilbride: When I first started managing the
fund, the principal objective was to focus on
retirees, people who were interested in a growing
stream of income that exceeded inflation-
a pretty easy bogey to beat back then and until
recently. But it's evolved. As the concept of
dividend growth has become more popular, fund
shareholders include those who are interested
in capital appreciation. I'm a big shareholder, and
I'm not retired. I've got young kids.
Scott Davis: We take a conservative total-return
approach. About 70% of our investors actually
reinvest the dividend. A lot of them are probably
50 or older. Those are the people that have
accumulated wealth. They want to participate in
markets, but they don't want to lose it. One
of my largest accounts is an overfunded pension
plan, and it isn't about the dividend. It's about
downside protection. Rule number one in
a down market is lose less, and rule number two
is don't forget rule number one.
Clare Hart: People use our equity-income strategy
as a conservative approach to investing in
equity markets, broadly speaking. But the mutual
fund pays a monthly distribution, and not
everybody reinvests that. In my mind, there's a
little old lady going to the grocery store, and that's
her money. That resonates, that there's someone
who might be relying on that income.
I also think about-especially in markets like this,
like COVID, the global financial crisis, the taper
tantrum-the retail investor who might not
have access to all the resources that, say, an
endowment can call upon. That retail investor who
looks at the screen on a given day at lunch
and says, Oh my gosh, the markets are down, I'm
just going to sell everything. To that person,
My goal is to make sure that people
stay invested in the markets, especially when
things are tough.
Clare Hart
downside capture's really important, so they can
see they aren't getting quite as bumpy a ride.
My goal is to make sure that people stay invested
in the markets, especially when things are tough.
Thomas: How do you benchmark strategies like these?
Kilbride: The mission is to deliver performance
that's consistent and predictable to the
fund shareholder. As a result, we are agnostic
to benchmarks totally and thoroughly. We
have two benchmarks that look very different from
one another. There's the Russell 1000, which is
the broad benchmark for a lot of the institutional
accounts I manage. The mutual fund has a
custom dividend achievers benchmark. It's never
been helpful to me to start with a benchmark
and to assess how I'm doing relative to that. My
goal is to compound wealth for the fund
shareholder over long periods of time. That's what
I'm trying to focus on-delivering that mission
of dividend growth to the fund shareholder.
Davis: Our official benchmark's the Russell 1000,
which was established more for screening
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