ThomasPartners Charts

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Onscreen text: An in-depth look at dividends.

Portfolio management for the ThomasPartners^® Strategies is provided by Charles Schwab Investment Management, Inc.

Bill McMann is in an office.

Bill McMann: I am Bill McMann, and I'm the Chief Investment Officer of ThomasPartners.

Bill and another man collaborate in an office overlooking a body of water with many boats.

Bill [off-screen]: Our philosophy is to focus on companies that pay their shareholders dividends. Why dividends? Well, let's take a look at our approach.

A man sits in front of four monitors displaying charts and graphs. Another man sits in front of a monitor dialing a number on a phone. A group of colleagues stand around a desk listening to a man seated at the desk.

Onscreen text: Dividends are always positive.

Bill: Dividends are always positive. They always make a positive contribution to total returns.

Male narrator: Let's take a closer look at those returns.

A chart titled "Contribution of Dividends to the S&P 500^®Total Return (1926–2023)" appears and shows how dividends account for greater returns than price appreciation.

Onscreen text below chart: See important disclosure, "Contribution of Dividends to the Total Return," at the end of this video.

Narrator: Since 1926, the S&P 500 has averaged about 10% annualized returns. Some of that is due to prices going up, and some of that is from dividends. Here, the white column shows the contribution from price appreciation. The blue column shows the contribution of dividends. Price appreciation can go negative, but dividends are always a positive contribution to total returns.

Onscreen text: How have dividends performed over time?

Bill: Historically, dividends have proven to be a very important component of total returns over time.

A chart titled "Growth of the S&P 500^® Index, Reinvesting Dividends" appears and shows how reinvesting dividends can lead to greater investment growth.

Onscreen text below chart: See the important disclosure, "Growth of the S&P 500 Index," at the end of this video.

Narrator: This example shows the growth of an investment in the S&P 500 Index over 40 years. Let's assume you purchased one share of the index 40 years ago at the then-current market rate. Forty years later, that one share would have experienced a fair amount of appreciation. But if you'd reinvested the dividends paid by the index each year, your total investment would have grown even more. That's the power of dividends.

Onscreen text: How have companies that increased their dividends performed over time?

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Bill: A dividend increase is a very powerful signal. A company that is telling you their business is doing well and increases its dividends shows that management's confident in their long-term earnings power.

A chart titled "The Power of Dividend Growth, Historical Total Returns of Stocks (1983–2023)" appears. It compares four types of companies based on their dividends.

Onscreen text below chart: See the important disclosure, "The Power of Dividend Growth," at the end of this video.

Narrator: Companies that increase their dividends have historically performed better than companies that don't. This study looks at companies with an inflation-adjusted market capitalization of one billion dollars or more, as of 40 years ago. Each company was placed in one of four buckets, based on their annual dividend payout policy: companies that didn't pay a dividend; companies that reduced their cash dividend payments compared to the previous year; companies whose policy stayed the same; and companies that increased their dividend payment over the previous year.

Each year these buckets were reallocated and sorted in the same manner. In the end, companies that initiated or increased their dividends provided much better total returns than those with other dividend policies. So those are the companies that ThomasPartners tends to select when building a portfolio.

Sailboats move around in the body of water outside the building. Bill sits in his office.

Onscreen text: What are the ThomasPartners^® investment objectives?

A chart shows the three ThomasPartners income growth strategies.

Bill [onscreen]: The ThomasPartners objectives are income every month, income growth, and total returns over time. Our investment strategy and research process is really organized around those three objectives.

Dividend income every month is important because it gives our investors a sense of certainty as they are budgeting for their year, particularly for those that are retired. The income growth piece is also very encouraging because it gives our clients an inflation offset. People's bills go up over time, and we expect the portfolio to generate more income over time to help offset those effects.

A chart titled "Estimated Income Growth Since Inception, Net of Fees" appears, gradually displaying a comparison over a 20-year period of the ThomasPartners Dividend Growth Strategy Composite portfolio (net of actual fees) versus two indices, the Russell 1000 Value Index and the NASDAQ U.S. Broad Dividend Achievers Index TR. While the estimated annual income of all three is around the $20K to $25K mark at the period ending 3/31/03, by 12/31/23, the estimated annual income of the ThomasPartners potfolio is at $198K, while the other two indices are near the $140K mark.

Onscreen text below the chart: Estimated income is simply an annual indication of income. It is not actual income nor does it guarantee income payment. Past performance is no guarantee of future results. See the important disclosure "Estimated Income Growth" at the end of this video.

Narrator: Here's an estimate of the annual income that could have been generated over those years. Let's assume that on March 31, 2003, $1 million was invested in each of three portfolios.

Here's the estimated annual income for the next 12 months. If we repeat this calculation each year on December 31, the example shows that the ThomasPartners portfolio would have provided more estimated income at the end of each year since inception versus the other two indices—and it provided a more steady income growth experience, delivering on its objectives of monthly income and income growth.

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Narrator: By seeking to provide a stable and growing income stream, ThomasPartners allows investors to receive the income generated from their equities and experience the long-term capital appreciation benefits of continuing to own stocks.

Chart: ThomasPartners' Dividend Growth Strategy and Balanced Income Strategies.

Narrator: ThomasPartners' approaches to investing share a similar investment philosophy: monthly income, income growth, and competitive total returns over time. Talk to your financial professional to see if ThomasPartners is right for you.

Onscreen text: Talk to your financial professional to see if the ThomasPartners Strategies are right for you.

The ThomasPartners^® Strategies logo appears.

The logo is replaced by a table showing comparisons of how trailing returns (net of actual fees) have changed between multiple financial entities over one, five, and ten years.

LEGAL DISCLOSURES

Portfolio Management for the ThomasPartners Strategies is provided by Charles Schwab Investment Management, Inc., dba Schwab Asset Management^®, a registered investment adviser and an affiliate of Charles Schwab & Co., Inc. ("Schwab"). Schwab Asset Management and Schwab are separate entities and subsidiaries of The Charles Schwab Corporation.

Please refer to the Charles Schwab Investment Management, Inc. Disclosure Brochure for additional information.

Past performance does not guarantee future returns; the value of investments and the income derived from them can go down as well as up. Future returns and the achievement of stated goals are not guaranteed and a loss of principal may occur.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets. Investments in managed accounts should be considered in view of a larger, more diversified investment portfolio.

There are risks associated with any investment approach, and the ThomasPartners Strategies have their own set of risks. First, there are the risks associated with investing in dividend-paying stocks, including but not limited to the risk that stocks in the Strategies may reduce or stop paying dividends, affecting the Strategy's ability to generate income. Second, investor sentiment could cause dividend-paying equities to fall out of favor and decrease in price. Third, there are risks associated with investing in fixed income asset classes, including through the use of exchange traded funds (ETFs), that include but are not limited to: interest rate risk, credit risk, high yield risk, and government security risk. Fourth, there are risks associated with investing in international stocks, including but limited to: differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Fifth there are risks with Master Limited Partnership (MLP) securities (units) that differ from an investment in common stock. Holders of the units of MLPs have more limited control and limited rights to vote on the matters affecting the partnership. For example, unit holders may not elect the general partner or the directors of the general partner, and they have limited ability to remove a MLP's general partner. MLPs may issue additional common units without unit holder approval, which would dilute existing unit holders. In addition, conflicts of interest may exist between common unit holders, subordinated unit holders, and the general partner of a MLP, including a conflict arising as a result of incentive distribution payments. As an income producing investment, MLPs could be affected by increases in interest rates and inflation. There are also certain tax related risks associated with an investment in units of MLPs, including that MLPs may convert to a C-Corporation. This conversion could cause a cut in distributions as well as an adverse tax event for long-time owners of the MLP. Lastly there are risks associated with Real Estate Investment Trusts (REITs), including REITs will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks, for example, REITs are dependent upon specialized management skills and cash flows, and may have their investments in relatively few properties, a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences on a client account. In addition, REITs have their own expenses, and a client account will bear a proportionate share of those expenses. Please discuss these and other potential risks with your Financial Consultant or investment advisor prior to investing.

©2024 Charles Schwab Investment Management, Inc. All rights reserved.

CC10853359 (0724-8W4K) (07/24)

Contribution of Dividends to Total Returns: Sources: 2019 Stocks, Bonds, Bills & Inflation^® (SBBI^®) Yearbook (1926–2018); Bloomberg (2019–2023). The S&P 500^® Total Return Index assumes reinvestment of dividends, includes capital gains, and does not reflect the effect of taxes and fees. Indexes are unmanaged and not available for direct investment.

Past performance does not guarantee future results.

Growth of the S&P 500 Total Return Index assumes reinvestment of dividends, includes capital gains, and does not reflect the effect of taxes and fees. Source: Bloomberg as of 12/31/2023. Indexes are unmanaged and not available for direct investment.

Past performance does not guarantee future results.

The Power of Dividend Growth 
Starting with the first quarter of 2019, Charles Schwab Investment Advisory, Inc. the then current advisor, changed vendors to Ned Davis Research, Inc. (NDR) for the generation of this study. The results of this transition produced different values for each of the dividend groups, in particular, the ‘Dividend Cutters or Eliminators' group now shows a noticeably higher total return than in prior charts. Factors that affected these results include a change in the data source from the CRSP^® 1962 U.S. Stock Database to S&P Capital IQ Compustat and S&P Dow Jones Indices, a change in the rebalancing period from annually to monthly, a removal of the $1 billion inflation adjusted market cap requirement (the stocks included in the study are from the NDR Multi-Cap universe, which represent the top 97% of capitalizations in the NDR All-Cap Universe). Starting in 2022 the data provider was changed from NDR, S&P Capital IQ Compustat to NDR, Refinitiv.

The Dividend-Paying Stocks chart shows the historical total returns of stocks based on their dividend policies. The stocks utilized in this study were obtained from the NDR BMES Multi-Cap EW universe. These stocks were grouped into four categories of dividend policies: Non-Dividend-Paying stocks, Dividend Growers and Initiators, Dividend Cutters and Eliminators, and Dividend Payers with No Change in Dividends. The methodology in creating this chart is as follows.

1) Dividend-Paying vs. Non-Paying

Each company's dividend policy is determined by its indicated annual dividend. Ned Davis classifies a stock as a dividend-paying stock if the company indicates that it is going to be paying a dividend within the year. A stock is classified as a ‘non-payer' if the company's indicated annual dividend is zero. Prior to July 2000, the indicated annual dividends were updated on a quarterly basis. Since July 2000, the indicated annual dividends are updated on a daily basis, so the most up-to-date information is used. The annualized returns are calculated using monthly equal-weighted averages of the total returns of all dividend-paying (or non-paying) stocks during the 1983–2023 time frame. A stock's return is only included during the period it is a component of the underlying NDR Multi-Cap universe. The dividend figure used to categorize the stock is the company's indicated annual dividend, which may be different from the actual dividends paid in a particular month. Indices are unmanaged and cannot be invested.

2) Dividend-Growing, No-Change-in-Dividend, and Dividend-Cutting

Each dividend-paying company is further classified into one of the three categories based on changes to their dividend policy over the previous 12 months. ‘Dividend Growers and Initiators' include stocks that increased their dividend anytime in the last 12 months. Once an increase occurs, it remains classified as a ‘Grower' for 12 months or until another change in dividend policy. ‘No-Change' stocks are those that maintained their existing indicated annual dividend for the last 12 months (i.e., companies that have a static, non-zero dividend). ‘Dividend Cutters or Eliminators' are companies that have lowered or eliminated their dividend anytime in the last 12 months. Once a decrease occurs, it remains classified as a cutter for 12 months or until another change in dividend policy.

Source: Ned Davis Research

Copyright 2024 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.

See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr/vendorinfo/.

Effective April 1, 2024, the equity portion of the ThomasPartners Strategies primary benchmark changed from the NASDAQ U.S. Broad Dividend Achievers index (DAATR) to the Russell 1000 Value Index (R1KV). Schwab Asset Management believes the benchmark index change provides a more appropriate comparison for evaluating the strategy's equity performance. The equity portion of the primary benchmark for all of ThomasPartners Strategies will change from the NASDAQ U.S. Broad Dividend Achievers Index (DAATR) to the Russell 1000 Index (R1KV) and the equity portion of the secondary benchmark will change from the S&P 500 Index to the NASDAQ U.S. Broad Dividend Achievers Index.

There are two versions of the ThomasPartners Dividend Growth Strategy. ThomasPartners Dividend Growth Strategy (K-1 Generating) has direct exposure to master limited partnerships ("MLPs") and generates Schedule K-1 tax forms. The other version, ThomasPartners Dividend Growth Strategy (Non K-1 Generating), uses exchange traded funds ("ETFs") to provide exposure to MLPS and therefore does not generate Schedule K-1 tax forms. Please consult your professional tax advisor for help with your unique situation.

Please refer to the ThomasPartners Profiles for the most recent performance data. Returns are expressed in U.S. dollars. Returns are presented net of fees and include the reinvestment of all income. Prior to the addition of wrap accounts beginning 6/30/2005, net of fee performance was calculated using actual management fees. After wrap accounts were added, net of fee performance is calculated net of actual management fees for non-wrap accounts, and net of actual wrap fees for wrap accounts, which generally includes management fees and transaction costs for wrap accounts. Actual net of management fees on non-wrap accounts is presented as it represents a higher fee than offered by this specific wrap sponsor.

The Income Growth Since Inception chart Dividend Growth Strategy assumes that a client invested $1 million in the composite on March 31, 2003 (the Strategy's inception date). Each period's estimated annual income shown is the product of that initial $1 million investment times the composite's cumulative total return, net of actual fees, since the inception date times the dividend yield. The dividend yield for the composite is based on the model portfolio. The dividend yield for the composite, Russell 1000 Value Index (R1KV) and the NASDAQ US Broad Dividend Achievers Total Return Index (DAATR) is the weighted average trailing 12-month yield. Dividend yields for the composite and indices are obtained from Bloomberg.

Prior to 2019, the dividend yield at each listed measurement date was derived by annualizing the last dividend paid for each security in the composite, and then dividing that dollar amount by the price of the security. Beginning in 2019, the composite's annualized dividend yield is derived using the model portfolio as noted above. The pre-2019 methodology for composite yield could have resulted in a higher or lower yield than the new methodology because the last dividend paid could have been higher or lower than dividends paid over the trailing 12 months. For the indices, prior to 2014, the S&P 500 Index yield was calculated using data from Dow Jones S&P Indices and the DAATR was calculated using data from the historical index data provided by NASDAQ OMX.

Annual income estimates have inherent limitations. The estimated annual income and portfolio value shown for the composite do not represent the results of any actual account. No representation is made that a client will achieve results similar to those shown. These charts should not be used as the sole basis in forming any investment decisions. Actual accounts have had performance that differs from the performance shown in these charts during comparable periods due to the customization of advice to each client and other factors. Information shown is supplemental to the Global Investment Performance Standards (GIPS^®) presentation shown at the end of this document. The investment results shown are not representative of an individually managed account's rate of return or strategy yield.

Index Information

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000^® Index companies with lower price-to-book ratios and lower expected growth values. The NASDAQ US Broad Dividend Achievers Total Return Index comprises U.S securities with at least 10 consecutive years of increasing annual regular dividend payments.

The Russell 1000 Value Index and NASDAQ U.S. Broad Dividend Achievers Index TR contain more securities positions than each of the ThomasPartners Strategies and, as a result, the performance of the Strategies at times may be more volatile than the performance of the aforementioned Indexes. Please note that there are material differences between the indexes shown, including potential differences in holdings and in how each calculates dividend yield.