Ronald Chan, Chief Investment Officer and Co-Portfolio Manager, Chartwell Capital
Dividend paying stock investor Ronald Chan founded Chartwell Capital in 2007 and currently serves as Chief Investment Officer and Co-Portfolio Manager. As CIO, he steers the firm’s investment strategy. As Co-Portfolio Manager, he oversees stock selection and portfolio allocation.
A frequent contributor to Bloomberg Opinion and Financial Times Chinese, Mr. Chan is an adjunct professor for the MBA program at The Hong Kong University of Science and Technology and the author of two books: Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett’s Top Business Leaders in 2010, and The Value Investors: Lessons from the World’s Top Fund Managers in 2012 and 2021 (second edition).
Mr. Chan served as a member of the Listing Committee Panel of The Stock Exchange of Hong Kong Limited from 2016 to 2022. Since his appointment in 2018 by the Hong Kong Trade Development Council, he has served as a member of the Greater Bay Area Committee: Smart City and Digital Connectivity Task Force.
Since 2019, he has served as an Independent Non-Executive Director for Powerlong Commercial Management Holdings Ltd. He has also been an international committee member of the Hong Kong M+ Museum and a founding member of the Hong Kong Biotech Development Council of the Hong Kong Science and Technology Park since 2020.
Mr. Chan has been the Vice President of the Education Development Foundation Association in Hong Kong since 2005. Mr. Chan graduated with Bachelor of Science degrees in Finance and Accounting from the Stern School of Business at New York University and is currently the President of the NYU Hong Kong Alumni Club and the Vice President of the Pan-Asia Alumni Committee.
He is also a member of the Board of Trustees at Malvern College in Hong Kong and at Worcester Academy in Massachusetts.
“The news headlines seem extremely frightening, and I can understand why people are scared about investing in our region.
Being local, however, we are having the best time of our lives because we are investing in companies that are trading at multiples and valuations that we haven’t seen for the past 25 years.
We are fetching all this low hanging fruit with really high dividend yields. These are companies with dividend yields of over 10% and with sustainable income streams.”
‘As I mentioned, we are investing in the Greater Bay Area of China. This is a region with a population of 86 million people with a GDP of $1.9 trillion.
This means that the economy in the Greater Bay Area is already larger than Spain, Australia, and close to Italy. Most economists predict that in 10 years’ time, the GDP of the Greater Bay Area will grow to $3.7 trillion to $4 trillion, which will surpass France, the U.K., or even Germany.
So I’m betting on the economic growth in this area, with a very high population and good demographics.
For example, we invest in a telecom company that is based in Macau. As you know, Macau operates a lot of casinos. It’s like the Las Vegas of China.
It has a population of only 800,000 people, a very small city.
The main operator in the telecom business is a company called CITIC Telecom (HKG:1883). This company pays an 8.5% dividend yield, trades at relatively attractive multiples.
From a top-down angle, this company is affected because of the COVID policy.
Normally it serves millions and millions of customers from all over the world visiting local casino facilities. But in the past two years, this city has no customers, and the company has had to streamline itself, and it still managed to pay an 8.5% dividend yield to investors.
As this lockdown COVID policy will eventually change, imagine when visitors can return to Macau. Roaming fees will see exponential growth. So for now, we keep buying this stock and let the magic of compounding based on its high dividend yield work its magic.”
Dividend paying stocks are not the investing only focus for Mr. Chan.
“ESG is very important nowadays, especially for Hong Kong listed companies.
In fact, I used to sit on the Listing Committee at the Hong Kong Stock Exchange, and I was part of the committee that steered the ESG policy.
Being at the forefront of ESG, I can assure investors that Hong Kong has one of the best standards in terms of ESG reporting.
The company I just mentioned, CITIC Telecom, which is a listed company in Hong Kong, must comply with all the ESG standards that the exchange set forth. What I can see is that corporate governance has improved dramatically over the past five to seven years with companies being more transparent.
As a fund manager myself, corporate transparency is important certainly, and while we have to ensure that all of our companies comply with the “E,” one thing that I am at the forefront of pushing is how do we improve on the “S.” These days we can’t just think about shareholder value, but also stakeholder value.
In terms of Ukraine and the war, certainly it’s frightening.
No one wants to see war.
In Hong Kong, or in Asia, we are relatively stable in terms of the currency, in terms of inflation, and in terms of how the war affects our region.
Since we don’t have a lot of trades with Ukraine, and many Hong Kong companies don’t have much exposure in Russia, we are not that affected.”
Thomas E. Browne, Jr., CFA, Portfolio Manager, Keeley Teton Small and Mid Cap Dividend Value
Another dividend paying stock investor, Thomas E. Browne, Jr., CFA, is a Portfolio Manager at the Keeley Teton Small and Mid Cap Dividend Value strategies.
Mr. Browne previously was a Portfolio Manager at Keeley Asset Management Corp.
He was also a Portfolio Manager for Oppenheimer Capital, SEB Asset Management and Palisade Capital Management.
Prior to that he was a sell-side technology services analyst and was twice recognized in The Wall Street Journal’s Best on the Street survey. Mr. Browne received a B.B.A. from Notre Dame and an MBA from New York University.
“At Keeley Teton, we manage small- and mid-cap value strategies with a focus on what we believe are misunderstood or underappreciated areas of that market. Our overall view is that in order to outperform over time, you have to do something different than what other people are doing. And so, we found a couple of different niches that we focus on.
We have two distinct strategies.
One focuses on companies undergoing significant corporate change, so events like emerging from bankruptcy or companies being spun off from larger companies or sometimes companies dividing themselves into two relatively similar parts.
Other areas in that genre are companies that are undergoing conversions to REITs.
We’ve invested in companies that have a franchise business model and sell their company-owned stores to use the proceeds to buy back stock and shrink the capital base.
A lot of different things with the common theme that they’re difficult to understand. By putting a bit of effort into it, you can create a very differentiated opinion about the future of the firm.
That’s one group of strategies that we manage.
The other group of strategies we manage is dividend strategies. We focus on these in the Keeley Small Cap Dividend Value Fund and the Keeley Mid Cap Dividend Value Fund.
Both focus on small- and mid-cap companies that pay dividends.
This is an area we got into about 12, 13 years ago because, one, it was a bit different from our restructuring strategies.
Secondly, it was very much aligned with what we’re already doing — i.e., focusing on small- and mid-cap companies.
And thirdly, and most importantly, dividend-paying stocks have historically produced good risk-adjusted returns.
They tend to produce better-than-average returns over time with less-than-average risk. And that’s kind of the holy grail in the investment business.”
Dividend paying stocks are the bread and butter investing strategy for Mr. Browne.
“Most of the money we manage is actually invested in the dividend strategies.
I think that a lot of smaller-cap investors don’t appreciate dividends. Very few actually look for them within companies.
And I think that some small-cap investors don’t really want to see them.
After all, if a company is small and it’s got nothing better to do with the cash than to give it back to shareholders, why would I want to invest in that? That would be the negative case.
Our view on dividends is that dividends tell you three important things about a company.
Number one is it tells you that the company can, and at least the management team believes that it can, sustain the free cash flow that it’s generating because ultimately sustainable free cash flow is the source of your dividends.
Secondly, because they have made this long-term financial commitment, we think that companies that pay dividends are more likely to be more disciplined about other ways in which they allocate capital via buybacks.
They may be more price sensitive about how they buy back stock or make acquisitions.
The bar gets raised if they know they have to pay their dividend. And so a dividend can help discipline capital allocation.
And then the third thing that dividend tells you is that the management team and the board understand who owns the company because they’re focused on returning capital to the owners.
If you think about those three things, sustainable free cash flow, more attention to the leverage, and acknowledgement of who owns the companies, those are a pretty good starting place to make an investment.
If you compare that to the perception, to the view that small-cap companies that pay dividends are not interesting, we think that difference is what is interesting to us.”
Dividend paying stocks the Mr. Browne currently owns have some interesting characteristics.
“For example, one of our longtime investments that we still have is a company called Marriott Vacations Worldwide (NYSE:VAC).
Marriott Vacations Worldwide is the timeshare business which was within Marriott International (NASDAQ:MAR), one of the largest hotel companies in the world.
When that business spun out in 2011, the shares given to the Marriott shareholders were a very small percentage of the value of Marriott. And so typically, when that happens, the Marriott shareholders simply are not interested in holding this other company. It’s new.
They don’t necessarily know it all that well.
At the time, the timeshare business was perceived as being a less interesting business in the hotel business. Also, the large-cap managers who owned Marriott didn’t have much interest in holding a small-cap company. And so, the stock generally falls pretty sharply after the spinoff, which gives us an opportunity to do our homework and make the investment.
Also, the information is incomplete. So you have to do your homework and really get to know the business. We have to understand the business.
I would say companies do a lot better job of presenting spinoffs these days than they used to, but we still see opportunities in that theme.”
Get the complete details on all the dividend paying stocks that these two portfolio managers own and recommend, only in the Wall Street Transcript.
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