article , video 11-03-2015

Will Rate Increases Impact Investing in Dividend-Paying Companies?

Portfolio Manager Jay Kaplan talks about why he believes a rise in interest rates won't have as high an impact on those strategies that seek long-term total return as opposed to those that mostly focus on high yield.

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"Everybody is pretty worried about a looming Fed interest rate increase. The Fed has been on record that we will probably have one toward the end of 2015. That's OK—now that they have said it, they sort of need to do it. They probably don't really want to do it because they are focused on inflation and we don't have any inflation, but, with that said, in our dividend strategy it is probably not a big deal as opposed to some other folks, and let me tell you why that is.

"A lot of people, when they are investing for dividends, load their portfolios with what we have called bond proxies: MLPs (Master Limited Partnerships), REITs (Real Estate Investment Trusts), utility stocks—all stocks that tend to pay high dividends, tend to use leverage, tend to be reliant on the capital markets—and those are really areas that we haven't used heavily.

"In our Total Return strategy and in our Dividend Value strategy, we are more interested in companies that can compound their earnings, compound their cash flow—which helps to compound investor wealth and take a little money off the table along the way in the form of dividends. We are not out to chase the highest coupon we can find. We are really driving toward total return.

"Investing in dividend-paying small-cap stocks, particularly when we're in a volatile market environment, can be really helpful. It's a great way to help dampen some of the volatility that is associated with the riskier part of the stock asset class, which is small-cap investing. You get to put a little money in your pocket along the way, which is kind of good. Companies that can pay dividends, they are often really good capital allocators and they are in really good steady businesses, the kind of businesses that I like."

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements. There can be no assurance that companies that pay a dividend will continue to do so in the future.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Royce Total Return Fund invests primarily in small-cap stocks and Royce Dividend Value Fund invests primarily in small-cap and mid-cap stocks. Investments in securities of small- and mid-cap stocks may involve considerably more risk than investments in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) Each Fund's broadly diversified portfolio does not ensure a profit or guarantee against loss. Each Fund may invest up to 25% of its net assets in foreign securities (measured at the time of investment), which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

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