Investment Policy Statement

At Buckley Financial Planning, we consider clearly outlining our general investment strategy and analysis methodology to be a high priority.  Our strategy begins with building fully customized portfolios that are centered around a client’s long-term financial plan.  Each custom portfolio will have a common theme of rising and sustainable income through the use of dividend-oriented stocks and income producing bonds.  Our fundamental belief is that company profitability is the backbone of a successful investment.

What Is a Dividend?

A dividend is a type of return on investment – a distribution of profit to the shareholder.  Dividends also display company confidence, a sustainable business model, earnings quality, stewardship and financial health.

Buckley Financial Planning identifies companies which display a history of growing dividends, financial health and a sustainable business model that can support healthy dividend distributions.

Characteristics of Dividends:

  • Reliable Income or Reinvestment:  Directly receiving profit from dividends provides freedom for the investor to reasonably account for annual income or reinvestment.  Dividends are tangible proof of a stock’s value.
  • Compound Income Growth:  Through our analysis and recommendation, Buckley Financial Planning can identify companies that should have the ability to steadily increase the dividend which should outpace inflation.
  • Downside Protection:  Your portfolio should create greater consistency over time when dividends continue regardless of share price. 
  • Solid Foundation for Total Return:  Dividends comprise an important component on historical total return.  Buckley Financial Planning sees this as a basis for a stocks long-term valuation.   

Buckley Financial Planning identifies dividends that we consider organically grown.  This means that the company has been able to sustain and grow their dividends through increasing revenue, maintaining margins, and generating more profit. 

What is a Stock?

Stocks provide a way for companies to raise capital by offering a piece of ownership to the general public.  Companies use this capital to grow their business and profitability.  When a company is growing their profit, this may increase the price of the stock, allowing them to buy back shares from the market and pay dividends.  We believe that direct stock ownership is an essential part of building long-term wealth.

Stock Analysis

When evaluating a company’s financial health, we analyze:  Revenue, Gross Margin, Operating Margin, Earnings per Share, Dividend Growth, Shares Outstanding, Payout Ratio, Debt Obligations, Free Cash Flow, Business Direction, and Management.

Buckley Financial Planning utilizes a variety of independent stock analysis reports.  These reports come from, but are not limited to, Fidelity, Thomson Reuters, Ford Equity Research, Morningstar.

Stock Diversification

Stock diversification can occur through using companies that have different market sectors, position sizes, market capitalization, locations, and dividend yields.  Along with diversifying each client’s custom portfolio, Buckley Financial Planning believes that it is important to strike the right balance between stocks that provide greater income now (higher yields/slower dividend growth) and stocks that provide more income later (lower yield/higher dividend growth). 

What is a Preferred Stock?

Preferred stock is another method for a company to raise capital.  Preferred stock shares generally have a dividend that must be paid out before dividends go to common shareholders.  Preferred stock usually pays a fixed dividend that does not increase.  Often times, this dividend is at a greater yield than the common shares and can provide additional income to reinvest or support retirement.

Preferred Stock Analysis

Along with reviewing the underlying company’s financial health, we evaluate the various covenants of a preferred share.  Specifically, we look for preferred stock that have the following features:

  • Below the Call Price:  The call price is the price a company can buy back preferred shares from the shareholder.  Re-purchasing a preferred share occurs after a specific date and is usually subject to the discretion of the underlying company.
  • Cumulative Dividends:  This means that if the company decides to suspend their dividend, which is within their right, the dividend owed to you accumulates.  When the dividend is reinstated, the cumulative preferred shareholder is first paid the entirety of what is owed before any other dividend is paid out. 

What is a Bond?

A bond is a debt obligation that a company issues that has a fixed stated interest rate (called the coupon) and specific date (called maturity) when the face value of the bond will be returned to the investor.

Characteristics of Bonds:

  • Stable Income:  Although dividends may fluctuate, bond interest should remain the same.  This can provide additional predictability to investor cash flow. 
  • Increased Cash Flow:  Bond interest rates can often times generate higher cash flows.  Since there is low potential for capital appreciation, bonds may offer higher interest rates to attract investors. 
  • Preservation of Capital:  Bonds have a fixed maturity date when the company will return the face value to the bond holder.  This can provide additional stability to a portfolio.
  • Reduced Price Risk:  If you hold a bond to maturity, and the company fulfills their debt obligation by returning the face value, an investor can withstand the price fluctuations of the bond market.

Bond Analysis

Analyzing a bond begins by reviewing the balance sheet and cash flow of the underlying company.  It is important for us to personally analyze the credit quality of the bond to determine if we believe the bond will continue to pay interest and return the face value upon maturity.  We also review credit quality reports and analysis from the 3 major credit agencies: Moody’s Standard and Poor’s, and Fitch.

Bond Diversification
Bond diversification can come through owning bonds with various interest rates, market sectors, maturity dates, and credit quality.  Buckley Financial Planning creates an asset allocation to bonds that are directly owned, so that the investor can have available capital as the bonds mature for income needs or reinvestment. 

Non-Core Investment Selection

Non-core investing usually involves searching for select growth opportunities in companies that do not pay dividends.  This would involve an analysis based on theme or momentum investing. 

Measurement

All investment return is measured using a Dollar Weighted Internal Rate of Return calculation (Modified Dietz).  This method for return calculation is a signature of modern portfolio management. It is one of the methodologies of calculating returns recommended by the Investment Performance Council (IPC) as part of their Global Investment Performance Standards (GIPS). 

Disclosures

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Buckley Financial Planning, LLC. Buckley Financial Planning and Commonwealth Financial Network® companies are independent entities.

All investments involve risk.  Past performance is not indicative of future results.  Investment return and principal value will fluctuate. 

Dividend yield investing may not be suitable for all investors. You should never invest solely on the basis of dividends. Higher dividends are not indicative of the quality of an investment. Additionally, higher dividends will result in lower retained earnings. As dividend yields may not be sustainable, income investors must be sure to analyze an investment carefully and their ability to sustain market fluctuations. Investments paying dividends do not carry lower risk. Dividend payments are not guaranteed by the issuing entity. The issuer can discontinue the dividend at any time. Dividend payments reduce the price of the security by the amount of the paid dividend. Diversification does not guarantee a profit or protection from losses in a declining market. Bonds are subject to interest rate risk. As the prevailing level of bond interest rates rise, the value of bonds already held in a portfolio decline. Portfolios that hold bonds are subject to declines and increases in value due to general changes in interest rates.

This communication is strictly intended for individuals residing in the states of AL, AZ, CA, FL, GA, ID, IL, IN, KS, KY, LA, MD, MA, MI, NJ, NC, OH, OK, OR, PA, SC, VA, WA. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

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