At Hamlin, we have always pursued a seemingly antiquated strategy: make an investment and get paid a cash return. We purchase stocks run by executives who have pledged to return a significant portion of their earnings to shareholders quarterly. Celebrated value investor, Ben Graham, wrote in 1934, “The prime purpose of a business corporation is to pay dividends to its owners. A successful company is one that can pay dividends regularly and presumably increase the rate as time goes on.” While a logical philosophy, we are among the relatively few investment strategies dedicated exclusively to income equity investing. Importantly, we do not think that income and growth are mutually exclusive.
As you know, we spend most of our time on individual security analysis. While some of these “bigger picture” musings inform our company revenue forecasts and help us manage risk, we believe that accurately predicting what the economy or stock market will do in a given year is all but impossible. We only share these macro thoughts to respond to our institutional and individual clients’ frequent requests for a broader market outlook. To the extent that the “known” risks discussed below or unexpected adverse developments send equities lower, expect us to focus on the longer-term total return potential for a portfolio of quality, high-dividend yielding companies. With an eye on future returns, we are likely to invest available cash in downturns and seize opportunities to swap into faster-growing companies that meet our yield, balance sheet and return on capital criteria.
Fundamentally, the case against Tech is mixed. We see little on the horizon likely to upset the shift to cloud computing, the primary engine of technology company revenue growth. Aggregate sales of Amazon Web Services, Microsoft Azure and Google Cloud Platform are approaching $70 billion—a large number but still a fraction of the $3.5 trillion global IT market.