The Dividend Corner

The Dividend Corner: 2025 2nd Quarter-end Market Update

Hi, I’m Nick Puncer, Portfolio Manager and member of Bahl & Gaynor’s Investment Committee. Welcome to our fourth episode of The Dividend Corner, following our mid- quarter update published in late May. Today is Monday, June 30, 2025 and what a start to summer it has been!

Markets have staged an impressive comeback following the “Liberation Day”-induced drawdown of the first quarter. The recovery has been impressive in both its speed and magnitude. Given the full summer lies in front of us, our thoughts this quarter will be compact. This is partly an acknowledgement of a season replete with vacations, time with family, and conditions ripe for thought and reflection — but also a recognition of how little has changed with respect to the underlying market risks we’ve highlighted previously, and Bahl & Gaynor’s role in addressing them for investors.

Toward the end of last year, we continued to raise concerns about market concentration, high valuation levels, and lofty earnings expectations amid gathering storm clouds. A market priced for perfection was inherently more sensitive to any disruption of the growth narrative. The source of disruption in the first quarter came in the form of heightened trade policy uncertainty, leading the market to correct nearly 20% from its intra-year highs.

Many of our conversations going into the end of the second quarter have centered upon “clearing the smoke”, so to speak, around traded policy uncertainty, Fed policy considerations, and other “known unknowns.” Because these variables are unknowable in the near and perhaps even medium term, clearing the smoke entails returning to basics: where we are now, where we may go from here, and most importantly, how to position for it. The fact pattern of where we are now goes something like this:

• First, markets have mounted an enormous comeback from the drawdown that began in the first quarter and bottomed out in early April, surpassing prior all-time highs at the time of this recording.
• Second, there has been little improvement in key economic metrics or “hard data.” If anything, some of these metrics have softened recently, likely reflecting the lagged impact of trade disruption. Therefore, the market’s recovery has been sourced largely from a recovery in sentiment (read: emotion).
• Third, earnings growth expectations have been dented because of the various growth disruptions mentioned, and their future path remains as uncertain as the timeframe for the resolution of top-of-mind risks for investors such as fiscal policy, trade policy, and the Iran/Israel conflict, to name a few.
• Taken together, this fact pattern means the market has returned to high levels of concentration, valuation, and susceptibility to changes in the growth narrative — a similar position to the closing months of 2024.

Where we may go from here is anybody’s guess. That said, the last two quarters have been enormously useful to investors because the drawdown and subsequent recovery has granted them a “free preview” of risk present in their portfolios as currently allocated. We cannot overstate the importance of this opportunity. If our conversations with clients and prospects — as well as the flow of new capital into our strategies — are a representative indicator, we believe investors held more risk exposure than may have been ideal for their circumstances going into the first-quarter drawdown.

Now is the time to make thoughtful changes to risk profiles so the progress investors have made over the last decade of excellent equity returns is protected, and so they sidestep serious market risks that have recently tested the behavioral limitations of investors to withstand high levels of volatility.

We want to conclude this quarter’s update by highlighting the fact pattern that Bahl & Gaynor offers across its strategies that can address the re-emergence of significant market risks and help investors remain optimally positioned to achieve their goals amid an uncertain future:

• We begin with the concept of upside and downside capture. Bahl & Gaynor’s strategies have historically demonstrated upside capture ratios amid market rebounds that are relatively consistent with downside capture ratios experienced during drawdowns. Year-to-date upside capture ratios across our strategies have ranged from 63% to 76%. These metrics reflect performance during recent market conditions and are based on gross-of-fees results, so investors would have seen a portion of the recovery relative to the market — though actual results may differ depending on fees, timing, and portfolio composition – but with less volatility.
• Earnings and dividend growth stability are another important concept. Though the companies we invest in are not immune to growth disruptions, we seek to identify quality companies with ample flexibility to navigate uncertain environments. As a result, our portfolios continue to deliver stable earnings profiles and dividend growth that is little changed from our estimates at the beginning of the year. This stability helps to ensure client goals remain funded as previously expected, and that the compounding so vital to successful equity investment is not disrupted.
• In our last few investor letters and mid-quarter updates, we’ve highlighted the extreme levels of concentration in passive equity indexes. Though these concentrations are not occupied by poor business models, they have left equity indexes more volatile than in the past. Bahl & Gaynor’s strategies are actively managed to promote diversification, which may help support more predictable outcomes compared to unmanaged index exposure. This diversification allows us to make thoughtful portfolio adjustments as fact patterns change rather than “hoping” the market consensus is infallible.
• Alongside our discussions of downside protection potential through quality exposure and diversification, we have also discussed the protection potentially afforded by valuation discipline. At the end of 2024, valuation levels of our strategies were several turns lower than their respective benchmark indexes, offering an added layer of protection amid the valuation compression that occurred through the first-quarter drawdown. That favorable valuation differential still exists today, even as the market has recovered, and we believe it will continue to serve investors in the form of added protection potential if the growth narrative is disrupted yet again.

We wish readers of this publication an enjoyable and safe summer ahead. We believe that the outcomes our strategies have delivered during this recent drawdown and recovery — including growing income, reduced downside risk exposure, and attractive risk-adjusted returns — can provide valuable support for clients’ financial peace of mind.

We thank those of you who have entrusted your or your clients’ capital to our care. And for those reassessing risk and portfolio positioning during these sun-drenched months ahead, we are confident in our ability to help move risk in a direction that can support critical outcomes for the investors we serve.

Disclosure:

Please note that the information provided in this update is for informational purposes only and does not constitute investment advice or a recommendation by Bahl & Gaynor. 

Before making any investment decisions, please consult with a qualified financial professional to ensure the information is appropriate for your individual circumstances.

Bahl & Gaynor is a registered investment adviser with the Securities and Exchange Commission (SEC), and all discussions in this update are subject to the firm’s disclosure documents, including Form ADV Part 2A and Part 2B, which are available upon request.

This is not an offer to buy or sell any securities or investments. Any examples or information related to specific securities are for educational purposes and should not be considered a solicitation or recommendation.

Downside and upside capture ratios are supplemental performance measures calculated using gross returns of Bahl & Gaynor representative large-cap and small/mid-cap strategy composites compared to the S&P 500® Index during down-market and up-market periods, respectively, for the YTD period through June 30, 2025. The S&P 500® Index is an unmanaged index that cannot be invested in directly.

This podcast contains forward-looking statements that reflect the current views of Bahl & Gaynor at the date of recording. These statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially. For complete net performance information, including 1-, 5-, 10-year, and since-inception figures, please refer to the full GIPS-compliant presentation available upon request at info@bahl-gaynor.com.

Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.

 

The Dividend Corner: 2025 2nd Quarter Mid-Market Update

Hi, I’m Nick Puncer, Portfolio Manager and member of Bahl & Gaynor’s Investment Committee. Today is Thursday, May 15, 2025, so we are halfway through the second quarter, and we wanted to provide investors with our thoughts about the year so far and our outlook.

Markets have regained a meaningful portion of what was lost in the volatile drawdown experienced after “Liberation Day.” This advance has come via a combination of the passage of time, reversal of some policy proposals, and contours of trade policy resolution emerging so companies can return to the collective highest and best use of their resources: maximizing profits.

In our interactions with investors during this quarter, several questions are a consistent staple of our discussions. We will answer them here but also provide broader thoughts that we believe may be helpful in positioning for the future.

How are your strategies positioned to navigate the ongoing volatility driven by trade and tariff policy uncertainty and where do Bahl & Gaynor think we go from here?

This is the first question we get, usually before sitting down, and usually asked in a way that exhibits genuine concern, which is understandable.

We think it’s best to divide answering this question into two parts: first-order and then second-order effects of trade policy uncertainty.

The first-order narrative we recount is along the lines of, “Markets ended 2024 with high valuation levels, and therefore greater sensitivity to any potential change in the growth outlook. Tariffs just happened to be the particular domino flicked into this fact pattern.”

It makes sense that the first-order reaction to the growth disruption precipitated by trade policy uncertainty is the compression of the price/earnings (P/E) multiple of a very expensive market. Because Bahl & Gaynor’s strategies came into this market fact pattern with considerably lower portfolio-level valuations, part of our downside protection YTD has simply been the avoidance of an as-significant compression in P/E multiple.

But this is not the complete picture. To complete the picture, we must examine idiosyncrasies present in both the large cap and small/mid (or smid) cap portions of the equity market.

In the large-cap space, concentration in top index constituents, which include many of the Magnificent 7, contributed significantly to the indexes’ nearly 20% peak-to-trough decline. We highlighted in our Investor Letter and quarter-end edition of The Dividend Corner that not only have the top 10 constituents of the S&P 500 grown to represent 35% of the index’s market cap at 3/31/2025 (versus 17% a decade prior), but the average downside capture of these top constituents has risen to 134% versus 92% a decade ago. While the beta of the market will always be one, this does not mean its volatility is constant.

Our work in portfolio construction and fundamental analysis is heavily focused on intentionally building downside protection potential so it is present in volatile periods whenever they arise and independent of proximal cause. For our large-cap strategies, this has involved avoiding the concentration of market indexes, selecting companies with lower-volatility business models and therefore lower-volatility equity, combining portfolio constituents in such a way as to maximize the benefits of diversification, and maintaining valuation discipline. This discipline has contributed to year-to-date downside capture ratios for our large-cap strategies ranging from approximately 60% to 75% versus the S&P 500.

The smid cap portion of the equity market possesses a different form of concentration. Nearly 40% of constituents were not profitable in the last four quarters ended 1Q2025 and this figure has been rising since 1990. A lack of profitability leaves a company dependent on external sources of capital, and capital market access can be unpredictable. Growth disruptions can upend this access and precipitate significant equity volatility or even impairment. In the smid space, Bahl & Gaynor builds in downside protection potential primarily through a focus on profitable companies – a near-universal feature of dividend-paying companies. This discipline minimizes exposure to unpredictable variables like capital market access that can potentially impair a business model. We also maintain our focus on diversification and valuation discipline, the combination of which has allowed our small and smid strategies to deliver downside capture ratios YTD of between approximately 65% and 75% versus their respective benchmarks.

Recall that we view this question as best answered in terms of first-order and second-order effects of tariff policy uncertainty. With the first-order impacts now articulated, the second-order component of this question relates to the impact of trade policy changes on the earnings profile of the market versus the companies we hold in our strategies. We believe tariffs can be viewed as inflationary in the short run in the form of a one-time price increase and disinflationary in the medium-to-longer run via substitution effects and supply chain retooling. This resembles the dynamics present in goods markets during the pandemic. The companies across our strategies demonstrated earnings resilience during this historical period, allowing the strategies to deliver portfolio income growth ahead of inflation. Today, the downside protection our strategies have provided relative to their respective benchmarks amid the trade policy upheaval signals the market’s confidence in resilient earning power despite these challenges.

On an individual company basis, we do believe this and subsequent earnings cycles will provide a clearer picture of how various businesses will be able to manage through any shift in trade regime. Inevitably there will be mis pricings that become evident in our fundamental work that we may act upon across our strategies. It’s important to note that these may be limited for the time being for two reasons:

1. The performance of our strategies in this period of elevated volatility has been peer-leading from a downside protection perspective, and in line with the expectations derived from investment theses across our strategy holdings.
2. Trading in anticipation of what may be, particularly with respect to fluid policy decisions, is not the sort of value we seek to add in delivering outcomes to investors. Allowing investor capital to compound consistently and produce more cash for them over time is our value proposition. These characteristics are fortunately slow to change because they are grounded in business models with wide moats, guided by management teams with experience through many kinds of cycles, and backstopped by balance sheets fortified in good times so they may provide protection in uncertain periods.

All this said, the second-order effects of evolving trade policy will not be known until trade policy itself arrives at a steady state. It’s uncertain how long various bilateral negotiations will take, and, in turn, when companies will be comfortable making investment decisions and individuals making purchase decisions based on these new policy equilibria. What we do know is financial flexibility amid a rapidly changing business and consumer environment is an advantage to companies that possess it. We view a significant component of our work as fundamental investors to be the underwriting of both business model resilience and financial strength for precisely these kinds of situations.

Even though action may be less necessary within the portfolios we manage, we do think now is an important time to re-underwrite overall portfolio positioning and risk exposure, which leads to our second question.

 

How do you think about the positioning of your strategies across other risk assets in investor portfolios, given the current and anticipated landscape?

From a longer-term and general perspective, the reason investors earn a risk premium from investing in equities is rooted in the innate tendency of humans to panic. This is one of those periods – it just so happens that tariffs were the proximal cause this time around and the reaction was made worse by the high starting valuation of the market and the idiosyncrasies we described across certain market cap spectrums in our first question.

Many of our conversations with investors during this period suggest that the volatility they experienced in investment disciplines outside of our own offerings exceeded their expectations and comfort levels. Recent strength, therefore, should be viewed as an opportunity for investors to re-think and re-calibrate their go-forward risk posture.

Across all risk assets, public and private, equity and fixed income, liquid and illiquid, we think it’s a very worthwhile exercise to re-underwrite quality exposure. Quality can be multi-faceted. It can concern valuation – an expensive quality asset can fail to deliver downside protection. It can concern fundamentals – unprofitable companies with great promise can be challenged by tightening financial conditions. It can concern mean reversion – the historically anomalous role price appreciation has played in the last 15 years of equity returns versus dividends may not continue for another 15 years. 

Whatever the vector, quality has mattered in this current environment, and it is likely to continue to matter for some time as the causes of volatility may be partly secular in Nature.

Though we are biased, we believe strongly that dividend growth strategies deserve a place in any investor’s portfolio. Dividends, in our view, provide a convenient signal to investors about the inherent quality of the business underlying the equity. Dividends have not been a central focus of investors for some time, whether because of falling interest rates and tame inflation, globalization, technological innovation, or simply investor zeitgeist. But a reversal or change to any of these reasons for dividends having been de-emphasized in the collective investor psyche is precisely what may make them so attractive as a portfolio component now and going forward. Perhaps in the future, investors will be more focused on durable earnings and the tangibility of dividends in the face of uncertainty.

As with tariffs, we have no special insight as to how this or any other volatility-inducing event may affect economic and market fortunes in the future. What we do know is the world is navigating significant change, and that can be uncomfortable, particularly given the uncertainty around its magnitude and duration. Through these changes, anything that can potentially enhance certainty of outcome will likely command a premium from investors. We know of no better way to increase certainty of outcome, in investment terms, than to own a diverse basket of resilient businesses that trade at reasonable valuations and reliably produce cash for reinvestment and distribution shareholders. Though the next few months and quarters may continue to be a nerve-wracking rollercoaster ride (and we hope it is not), we are confident in our ability to deliver these outcomes to investors in their time of need.

 

We conclude with the final question we have been asked frequently: What would make you more optimistic about the economic and market backdrop?

This question is usually asked in the context of the prior answers being perceived as bearish in nature – which is not our intent. After all, we at Bahl & Gaynor are long-term equity investors and ours is a fundamentally optimistic asset class. We do not view ourselves as bearish, merely cautious, which is an underpinning of our value proposition in the form of downside protection – discussed at length so far today and in our most recent quarterly Investor Letter (link).

Since the trough lows in early April, markets are clearly discounting some level of resolution to the shift in trade policy and other risks as markets have recovered about half their losses from YTD peak in short order. Part of this may be the self-inflicted nature of trade policy revisions and the ongoing adaptation of the approach to resolution. There is a careful balance here because uncertainty is not only what pressures P/E multiples outright, but also future earnings via diminished investment and demand. Conversely, incremental removal of uncertainty allows the market to more clearly discount future value.

We do think some inked trade deals, or at least memoranda of understanding, will go a long way towards helping businesses regain confidence to invest and demand to recover. This has already been reflected in the positive reaction to the announced outcomes of negotiations between the US and the UK and a détente with China. But we also think this overlooks the broader opportunity currently available to investors. Because of the recovery in risk assets, there is currently an uncommon opportunity for investors to reassess their portfolio positioning based on their recent experience amid volatility and potentially adjust this risk profile if it has threatened future goals or caused undue concern.

The incipient market recovery is providing an opportunity for investors to make necessary changes without as much of the behavioral pain of forced selling or “trading under fire.” While the incredibly strong equity returns of the last few years, indeed the last 15 years, have advanced investors closer to their goals, now is the time (and opportunity) to think deeply about the level of risk one is willing to accept on their continuing journey.

We are pleased with the tangible outcomes we have provided to investors through this period of volatility, namely a little-altered dividend income stream that is likely to grow faster than inflation this year, and downside protection amid the market drawdown. We hope to be considered as part of this risk introspection process we believe investors will be undertaking in the coming weeks and months.

 

Disclosure:

Please note that the information provided in this update is for informational purposes only and does not constitute investment advice or a recommendation by Bahl & Gaynor.

The views expressed in this update are those of the speaker and may not reflect the views of Bahl & Gaynor. Market conditions can change rapidly, and past performance is not indicative of future results.

Before making any investment decisions, please consult with a qualified financial professional to ensure the information is appropriate for your individual circumstances. 

Bahl & Gaynor is a registered investment adviser with the Securities and Exchange Commission (SEC), and all discussions in this update are subject to the firm’s disclosure documents, including Form ADV Part 2A and Part 2B, which are available upon request.

This is not an offer to buy or sell any securities or investments. Any examples or information related to specific securities are for educational purposes and should not be considered a solicitation or recommendation. 

Downside capture ratios are supplemental performance measures calculated using gross returns of Bahl & Gaynor representative large-cap strategy composites compared to the S&P 500® Index during down-market periods YTD through May 15, 2025. The S&P 500® Index is an unmanaged index that cannot be invested in directly. For complete net performance information, including 1-, 5-, 10-year and since-inception figures, please refer to the full GIPS-compliant presentation available upon request.

Downside capture ratios represent gross performance for representative Bahl & Gaynor’s mid and small-cap strategies during negative return periods YTD through May 15, 2025. These are supplemental to net performance and benchmark results, which are available in Bahl & Gaynor’s full GIPS compliant presentation upon request.

Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.

The Dividend Corner: 2025 1st Quarter-end Market Update

Hi, I’m Nick Puncer, Portfolio Manager and member of Bahl & Gaynor’s Investment Committee. Welcome to our second episode of The Dividend Corner, following our inaugural episode, which was our mid-quarter update. Today is Monday, March 31, 2025, and we will discuss the first quarter including the current growth scare, Bahl & Gaynor’s positioning, and our outlook.

Since our mid-quarter update, domestic equity markets have remained volatile after sliding as much as 10% during the quarter on growth concerns. This drawdown is perhaps not unsurprising given the combination of high recent returns, lofty valuations, and a fast-changing policy mix.

Bahl & Gaynor’s strategies are designed to provide downside protection, which they did during this quarter. We believe this downside protection is a natural outgrowth of our preference for companies that pay dividends and grow them because the market recognizes the intrinsic quality of these businesses, particularly in times of stress.

As active managers, we believe we can further compound this intrinsic quality, and therefore downside protection, through portfolio diversification and valuation discipline.

In a broader sense, downside protection is important for investors not only because of the recent market drawdown but also because of the current market structure. The slide pictured here illustrates the well-understood dynamic of large-cap concentration increasing over the last decade. But we take this a step further and examine how the downside capture ratio of the largest equity market constituents, pictured at the bottom of the slide, has also changed. This group’s downside capture profile has increased by nearly 50% over the last decade.

Even though the market’s beta will always be one, this does not mean the market has constant volatility. With the high equity returns of the past few years, indeed the last decade, it may be tempting for active managers or investors to mirror index composition. But that action could involve assuming more risk than investors expect or is necessary to achieve their goals. That is why Bahl & Gaynor’s strategies emphasize high active share relative to their index benchmarks, meaning we look very different than the construction of passive indexes.

Because investors have made significant progress against their goals, given the high equity returns of the last decade, a core mandate for our active approach is to avoid setting investors back through exposure to excessive risk and downside volatility.

—

Switching gears to the growth scare at hand. Growth scares occupy a tiring middle ground between the wealth creation of economic expansions and the unsettling wealth diminishment of economic contractions. This fear is perhaps most poignantly elicited in the Atlanta Fed’s GDP Now indicator pictured on this slide, which shows the onset of the growth scare in real time.

Investors are now understandably busied by trying to figure out whether the economy will continue to grow or weaken further. We don’t know which way this growth scare will break, but we also don’t believe that information is necessary for many investors to achieve their goals. Various envisioned futures depend largely on the timeframe. An economic contraction may have a higher probability of occurring near term, but that gives way to a rising potential of expansion further out. The reverse of this is also true. Much of the work to be done by investors concerns managing risk around different time frames. In the near term, if an incremental drawdown is more likely, then downside protection can serve an important purpose. But in the long term, inflation and preserving investor purchasing power are probably the risks of greatest concern.

Bahl & Gaynor’s investment approach attempts to balance the various timeframes investors must navigate:

• The downside protection we seek to provide is the desired outcome of the fact pattern we prefer for fundamental investment. It should be predictably present in the near term when needed, as it has been amid this current growth scare.
• But our commitment to being a fully invested, diversified, equity-only manager serves the longer-term objective of inflation protection both through growing investment income and capturing the equity risk premium.

We believe exposure to equities with less volatility than the market, particularly downside volatility, is a potentially useful component of any investor's portfolio.

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Much of our commentary has been philosophical, which we view as appropriate given the inherent emotion of a growth scare. But we also believe there are more tangible takeaways worth highlighting:

First, diversification balanced with conviction is an important competitive advantage of active management. This speaks to the market concentration and downside capture profile of the current market structure we shared earlier. Letting risk exposures float freely – as in passive index construction – can yield volatile outcomes for investors when economic fundamentals or even sentiment and expectations shift. While operating a diversified portfolio may not deliver maximum near-term absolute return, we do think it can provide competitive returns adjusted for risk, which we believe suits the temperament of human clients well. Our efforts to manage concentration risk in our portfolios have paid off in terms of providing downside protection and potentially capturing the opportunities available through rotating proceeds from high-expectation wins to low-expectation opportunities.

Second, opportunities likely exist where most investors are not focused. Strong market returns of the last few years have been concentrated in sectors receiving significant investor attention, like the Information Technology and Consumer Discretionary sectors. While exposure to secular growth patterns in these sectors is important, and something we possess across our strategies, we also believe opportunities can be found in unloved sectors where many investors have allocated little attention. Lately, these might include the Consumer Staples and Health Care sectors, or Energy and Financials before that. Many of these unloved sectors have provided alpha generation and downside protection amid the recent growth scare. In turn, we believe some of the recently dented sectors that had captured much investor attention in prior years may possess their own opportunities that we are currently investigating.

Third, uncertainty in the market does not abate – it just shifts around. The policy uncertainty, partly to blame for worrying investors this quarter, may never return to zero. Indeed, believing it was zero to start is likely a false premise. Given this, it makes sense to pay close attention to fundamental characteristics that position business models to thrive in the broadest range of potential outcomes. That is why the work of fundamental analysis is a critical tool Bahl & Gaynor constantly utilize to proactively manage portfolio risk.

—

We are often asked about our broader thoughts and perspectives outside of our focused fundamental dividend growth philosophy. To close out this quarter’s commentary, we want to share some of these thoughts, ordered from the nearest term to the most secular in nature:

• Sentiment has shifted massively over the last quarter, almost a complete 180° from the prior quarter and two years. This almost inevitably means sentiment has overshot in terms of bearishness and may begin to recover before long. So, human sentiment is volatile and unpredictable, which is why it’s important to be invested and stay invested; that is what permits compounding.
• But, sentiment improving and some market recovery do not necessarily mean market volatility will settle back down. There remains a tug of war between growth-negative and growth-positive policy narratives. Timing, sequencing, and magnitude of these policies will eventually impact fundamentals, but specifics won’t be known for some time. In the face of this ongoing uncertainty and paying deference to the importance of being invested and staying invested – being diversified while invested acknowledges and addresses the presence of risk, which we think of as the possibility that more things can occur than will occur.
• It’s not lost on us that “soft data” responds quickly to shocks, but “hard data” can take longer to register a response. This is both a good and a bad thing. A good thing if policy volatility quickly settles down, then real economic damage could be minimal. A bad thing if policy volatility remains elevated and important economic decisions are put off, stalling growth via a negative feedback loop. Focusing on business model resilience is critical given the spectrum of potential economic outcomes.
• Benchmarks can be useful to gauge variables affecting equity returns like valuation, earnings growth, and participation. But benchmarks can also possess serious flaws, like susceptibility to excessive investor optimism or concentration, and reflect the past perhaps more than the future. For human investors, the best benchmark is likely simply achieving one’s goals. This often has more to do with a well-considered plan regarding risk than the pursuit of only surface-level absolute return. Take time to revisit goals and re-underwrite portfolio positioning according to risk tolerance and goals.
• Pictured in this slide, the contribution to equity return has been heavily skewed towards price return rather than dividend return in the last 15 years. This differs significantly from the last century of market history. It is not unprecedented to have price return-heavy regimes, but these are often followed by dividend return-heavy spans. Many of the topics causing investors concern today, like inflation and hyper-globalization, are new risks that differ considerably from the risks faced over the prior 15 years. These risks will likely have different impacts on the mix of dividend and price return comprising total equity return over the next 15 years. Consider dividends as a potential return source to address secular risks.

The current growth scare is another reminder of the uncertainty equity investors must endure to earn the risk premium associated with the asset class. But investors are not powerless in controlling the risk profile of their portfolios to align with their temperament and needs. We are grateful for the opportunity to share our results and thoughts about these topics with investors we currently serve, and those we hope to serve in the future. Thank you for your time in listening today, and please do not hesitate to reach out to us through your local Institutional Portfolio Consultant, our website, or by telephone. We look forward to continuing to serve you.

Disclosure:

The information presented in this commentary is for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. This commentary does not create a fiduciary relationship or obligation between Bahl & Gaynor and any recipient.

Investing involves risk, including the possible loss of principal. No investment strategy, including those designed to provide downside protection or dividend growth, can guarantee positive returns or eliminate risk. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results.

The views expressed in this commentary are those of the speaker and may not necessarily reflect the views of Bahl & Gaynor. Market conditions can change rapidly, and any opinions or projections are based on current information and assumptions that may change without notice. Actual results may differ materially due to various factors, including market conditions, economic developments, and unforeseen events.

This commentary may contain forward-looking statements, which are based on current expectations, estimates, forecasts, and assumptions that involve risks and uncertainties. Actual outcomes and results may differ materially from those expressed or implied in any forward-looking statements due to various factors, including but not limited to changes in economic conditions, interest rates, market volatility, and regulatory developments. Bahl & Gaynor assumes no obligation to update any forward-looking statements.

References to benchmarks and market indices are for illustrative purposes only and do not imply that Bahl & Gaynor’s strategies will achieve similar results or outperform. Benchmark and index comparisons are not intended to suggest that any Bahl & Gaynor strategy will outperform or achieve similar results. Investors should carefully consider their objectives, risk tolerance, and investment time horizon before making any investment decisions.

Any references to specific securities are for educational purposes only and should not be considered a solicitation, recommendation, or endorsement.

Bahl & Gaynor is a registered investment adviser with the Securities and Exchange Commission (SEC). All discussions in this commentary are subject to the firm’s disclosure documents, including Form ADV Part 2A and Part 2B, which are available upon request. Bahl & Gaynor provides investment advisory services in accordance with applicable laws and regulations.

 

The Dividend Corner: 2025 1st Quarter Mid-Market Update

Hi, I’m Nick Puncer, Portfolio Manager and member of Bahl & Gaynor’s Investment Committee. Today is Friday, March 7, 2025, so we are more than 2/3 of the way through the first quarter, and we wanted to provide investors with our thoughts about the year to date and outlook.

The quarter started with optimism regarding economic growth, which is understandable given the strong economic profile of the last two years and the substantial equity returns this fact pattern has supported.

But challenges have mounted, including:

• The emergence of DeepSeek as a potentially lower-cost disruptor of the US artificial intelligence ecosystem,
• Attempts to reduce fiscal spending via DOGE and congressional action; and,
• Fluid tariff policy enactment across major US trading partners.

These factors have not yet significantly affected growth, inflation, or other economic variables, but policy volatility has weighed on investor sentiment. This can eventually impact investment decisions and promote elevated volatility in equity markets.

Friday, February 21, seemed to be the first day of market action reflecting the emergence of a “growth scare”:

• Market action that day carried a distinctly defensive market tone,
• The volatile trading pattern has generally been sustained through February and into March,
• This has generally benefited our high-quality, dividend growth approach, leaving all four marketed strategies ahead of their respective benchmarks for the YTD period through March 7.

Our Investment Committee views these periods of elevated volatility as opportunistic because they generally produce investor over-reactions, which can lead to assets becoming mis-priced:

• In particular, we have been focused on the opportunity set in the Health Care and Consumer Staples sectors, where investor expectations appear to be quite low, yet business models exist within these sectors that fit our quality and shareholder capital return criteria.
• We are also aware of sectors where expectations may be lofty coming into this period of volatility, like Information Technology and Consumer Discretionary. This is not to say we are downbeat on the categories as a whole, but funding opportunistic asset mis-pricings in beaten-down sectors is often best achieved by sourcing funds from sectors where high expectations may be at risk of disappointing investors.

Taking a step back in terms of market outlook, we believe the last two years of healthy equity returns were largely driven by the upside surprise of avoiding recession. We suspect the avoidance of recession was a base case expectation for investors entering this year, which is partly evidenced by equity index targets published by the Street to begin the year that were largely ahead of levels achieved by the end of 2024.

All of this is to say that continued disruption to the narrative of a “no recession scenario” could sustain volatility like what we are seeing now.

To manage this risk, we focus on owning reasonably priced assets, with a low-volatility source of return in the form of dividends and dividend growth, and underlying business models capable of compounding throughout economic cycles.

We do think that active management possesses an advantage of choosing risk exposures in a volatile environment, and we do see ample opportunity for our style of investing to add value across the market cap range.

On that note, we will conclude by inviting you to review two recent and brief white paper publications: “Big Reasons to Think Small – Volume 2,” and “Market Concentration: At the Tipping Point?” on our website under the Insights tab.

The first publication outlines the opportunity for owning dividend growth equities in the small and mid-cap space.

The second paper takes a historical view of concentration and diversification cycles in equity markets and the distinctly different return profiles in each of these regimes.

Thank you for your time in listening today, and please do not hesitate to reach out to us through your local Institutional Portfolio Consultant, our website, or by telephone. We look forward to serving you.

 

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Please note that the information provided in this update is for informational purposes only and does not constitute investment advice or a recommendation by Bahl & Gaynor.

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