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Dividend & Income SMA

Split Rock Private Trading & Wealth Management actively manages a specialized Dividend & Income SMA. This model was created to provide a decreased level of risk for investors and to help protect and preserve wealth. The Dividend & Income SMA’s main focus is on generating a steady and predictable stream of income for investors. We always keep our client’s account values in mind and carefully select our holdings to help provide bottom-line growth and stability in addition to income.

Split Rock’s team of analysts keep a close eye on a variety of indicators (economic cycle, interest rates, etc.) while determining what positions to hold within this model. Although our main focus is on generating income, we try to invest in companies that are well-positioned within our current economic state to not only provide the income we are looking for, but to grow as well. For example, if we feel we are in a recession, we might look at consumer staples companies that pay decent dividends and meet our other investment parameters. During recessions, consumer staples tend to hold-up very well because people still need to buy their products (toilet paper, soap, pop, etc.). In this case, investing in consumer staples could not only provide the income we are looking for, but could help to grow or protect the account values of our clients as well. Looking at another example, if we feel we are in the early stages of an economic expansion, we may look at investing in consumer discretionary companies (think companies that sell TV’s, snowmobiles, cars, etc. – basically, items that people tend to buy when they have extra income to spend). By finding companies such as these that meet our investment parameters (decent dividend, etc.) we might be able to capture capital appreciation in addition to income. Our main focus may be on income, but we are always looking for the best ways to protect and grow our clients’ accounts while generating the desired income.

Of our three separately managed accounts, we consider the Dividend & Income SMA to be the least volatile. 


Our analysts go through a rigorous process when deciding what investments to hold within our Dividend & Income SMA. We have a well-devised list of parameters in place that help us identify companies that we feel could fit into the model.

One of the most important parameters we look at is a company’s dividend payout history. We want companies to show that they have maintained or increased their dividends consistently for at least the past five years; five years is important because it shows which companies made it through 2008 (huge financial meltdown) without any major dividend problems.

Ideally, we prefer a company’s dividend payout ratio to be within 40% - 60%. A dividend payout ratio shows the amount of a company’s earnings paid to its shareholders in the form of dividends. This metric helps investors pinpoint what companies are doing with their earnings and possibly shows their ability to continue paying their dividends if they experience any sort of problems. If a dividend payout ratio gets to be too high, it shows that a company could have trouble maintaining their current dividend if they have any major setback.

Although we do not necessarily exclude any investments, we look for companies that ideally pay annual dividends that are equal to or greater than 3%. When building a dividend & income model, we feel it is important that the individual companies that we hold are able to generate and maintain decent dividends.

We will not necessarily always use individual equities within this model. We look at individual stocks, preferred stock, options, bonds, and exchange traded funds (ETFs) when deciding what to invest in. There are many different products available to help investors generate income and we like to screen all of them before we make any investment decisions.

Within the Split Rock Dividend & Income SMA, we have the ability to write covered calls on our positions. Covered calls can be a great way for investors to generate extra income if they are used properly. Writing covered call options is just one of the many tools our portfolio managers have at their disposal.

As stated above, the Split Rock Private Trading Dividend & Income SMA is managed to help investors grow and preserve their wealth. Our analysts pay close attention to many leading economic indicators including identifying which phase of the economic cycle we are in and investing accordingly.


Research begins by looking at all the eligible products available to use within this model. We look at all the publicly traded companies listed on the NYSE, NASDAQ, and AMEX. We look at various bond offerings, preferred stock, options, and even exchange traded funds. We run rigorous screens to help identify which investments could currently be suitable to include in this model. We have a team of analysts using fundamental and technical analysis to help narrow our search down to investments that we feel are the “best-of-the-best.” Before we make any major allocation decisions, we double check our figures and cross check our research with other well-respected analysts’ research and recommendations. 

Allocation Discipline

Our Allocation Discipline consists of the following:

  •   Holdings = Typically no more than 50 individual positions
  •   Weightings = Typically 2% minimum weighting, 15% maximum weighting

Rebalancing techniques are based on either tactical or performance-related adjustments (through the use of Sell Limit orders or Stop orders). Following trades, proceeds are used to rebalance existing holdings, held in cash for future buying opportunities, or used to enter new positions.

Sell Discipline

Our sell discipline is based on many factors including but not limited to:

  • Strategic and tactical adjustments.
  • Using trailing limit orders to help protect gains or minimize losses.
  • Ongoing fundamental and technical analysis.

At any time if one of our positions fails to meet our investment parameters, we will closely examine the position to decide whether or not to maintain our exposure or to jettison that holding.