The Lead - Sharing the Wealth

Large, Mid, and Small Cap Earnings

“This remains a highly fluid environment, and timing the market is inherently difficult. We will continue to provide updates as new information becomes available. Last week we hosted a webinar with Jan Stuart and Jake Oubina, where we discussed how we at Piper Sandler are approaching the outlook for markets, the economy, and oil, along with our recommendations for navigating uncertainty.” Source: Piper Sandler. EPS: earnings per share. NTM: next twelve months. Data is as of 04.07.2026. Y-axis indexed.

During our research meeting last week, the investment team was scrutinizing three of our equity investments. A topic that kept surfacing while determining which stock we believed had the best prospect for outperformance was capital allocation. How a company manages the capital we provide to them as equity investors provides us with insight into their business acumen, their priorities, and their ability to plan growth for their business. We believe one of the beauties of dividend growth investing is that companies with a history of sharing their earnings through dividend payments to their shareholders, and increasing those dividends, provides us with valuable insight into their priorities and their ability to pay amounts that may grow over time.

A function of this dynamic is the dividend payout ratio that measures the percentage of earnings that companies return to shareholders through dividend payments each period. As can be seen in the chart at the top of the page, the trend for earnings for companies large and small has been up and to the right. Have these growing earnings streams been shared with shareholders? Maybe not to their potential, in our view.

There are a number of possible value enhancing areas where company management may apply a portion of earnings, such as share repurchases, for example. But despite higher corporate earnings, the percentage shared with their shareholders appears to have been falling over the past several years.

S&P 500 Dividend Payout Ratio

Source: Bloomberg L.P.

S&P 500 Quarterly Year-Over-Year Dividend Growth

Source: Bloomberg L.P.

As a result of these lower dividend payout ratios, we believe this may be a situation where higher levels of corporate earnings are not translating into dividend growth in the market or the S&P 500, as seen in the chart above. We seek out quality companies that may not only grow earnings but generate returns on capital in excess of the demands to grow the business, so they may also deliver dividend growth commensurate with their earnings growth. If there is value in scarcity with dividend growth, companies that not only pay dividends but grow them faster than the market appear to have a valuable quality. We prefer companies that share wealth year in and year out.

As always thank you for your interest and trust managing your investments.

Disclosures

Past performance is not indicative of future results. Any type of investing involves risk and there are no guarantees that these methods will be successful. Economic charts are provided for illustrative purposes only. The information provided herein is subject to market conditions and is therefore expected to fluctuate.

The opinions contained in this presentation reflect those of Sterling Capital Management LLC (SCM), are for general information only, and are educational in nature. The opinions expressed are as of the date of publication and are subject to change without notice. These opinions are not meant to be predictions and do not constitute an offer of individual or personalized investment advice. They are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. All opinions and information herein have been obtained or derived from sources believed to be reliable. SCM does not assume liability for any loss which may result from the reliance by any person upon such information or opinions.

Investment advisory services are available through SCM (CRD# 135405), an investment adviser registered with the U.S. Securities & Exchange Commission (SEC) and an indirect, wholly-owned subsidiary of Desjardins Global Asset Management Inc., which is part of the Desjardins Group. SEC registration does not imply a certain level of skill or training, nor an endorsement by the SEC. SCM manages customized investment portfolios, provides asset allocation analysis, and offers other investment-related services to affluent individuals and businesses.

Sterling Capital does not provide tax or legal advice. You should consult with your individual tax or legal professional before taking any action that may have tax or legal implications.

The securities described are neither a recommendation nor a solicitation. Security information is being obtained from resources the firm believes to be accurate, but no warrant is made as to the accuracy or completeness of the information.

The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

The Chartered Financial Analyst^® (CFA) charter is a graduate-level investment credential awarded by CFA Institute — the largest global association of investment professionals. To earn the CFA charter, candidates must: 1) pass three sequential, six-hour examinations; 2) have at least four years of qualified professional investment experience; 3) join CFA Institute as members; and 4) commit to abide by, and annually reaffirm, their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.

Since we began publishing The Lead in 2015, our primary purpose has been to communicate our investment philosophy and process as an investment advisor in the context of changing markets. In creating portfolios that differ from our benchmarks by focusing on characteristics that have a long term history of attractive relative returns according to Ned Davis Research, the portfolios are different from the benchmarks and as a result there can be periods where results differ including below benchmark performance. Since strategies are oriented toward the long term characteristics, if those characteristics are out of favor over a period of time, the given strategy’s performance could be challenged in terms of relative performance. While Sterling believes active professional investment management that employs a consistent process with a long term orientation and aligned with client interests offers benefits, management fees to support the active approach can be higher than certain alternatives. When hiring an investment manager we believe it is important to monitor the investment risks taken including sector concentrations, portfolio turnover, and the impacts of dividend policy changes.

About the Author

Charles Wittmann, CFA^®

Co-Portfolio Manager

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Charles Wittmann, CFA^®, Executive Director, joined SCM in 2014 and has investment experience since 1995. Chip is Co-Portfolio Manager of the Equity Income strategy. Prior to joining SCM, he worked for Thompson Siegel & Walmsley as a portfolio manager and (generalist) analyst. Prior to TS&W, he was a founding portfolio manager and analyst with Shockoe Capital, an equity long/short hedge fund. Chip received his B.A. in Economics from Davidson College and his M.B.A. from Duke University's Fuqua School of Business. He holds the Chartered Financial Analyst^® designation and served as President of CFA Society Virginia from 2012-2013.