Miller/Howard Income-Equity Fund MHIEX
Miller/Howard Commentary
Leaning Towards Dividend Growth
Greg Powell, Portfolio Manager

See the Miller/Howard Income-Equity Fund fact sheet for the most recent top 10 holdings.

Transcript:

Interest rates have been falling for years, driving stock prices up, and reducing the dividend yields for many classic dividend payers. Over the long term, the compounding value of income equity stocks is a function of both beginning yield and the growth of yield over time. The low starting yield relative to history combined with slow growth leaves us less than enthused about most of the stocks in the utilities, consumer staples and real estate sectors. Naturally there are exceptions, but relative to our broad universe, we have recently found better opportunities in sectors with higher growth.

Mature technology companies offer excellent prospects for both yield and growth of yield. Fluctuating demand for personal computers and mobile phones used to make this a highly cyclical sector. It's hard to rely on a stream of dividends that's dependent on nailing the "next big thing." The industry has now diversified dramatically. Semiconductors and software are literally everywhere, from factory floors to autos to the video doorbell I just bought for our home.

Management teams at some leading tech companies have acknowledged the industry's newfound stability by announcing large dividend increases. As examples, the most recent dividend increase at Cisco was 14% and at Texas Instruments it was 24%. Even larger was the 27% dividend increase announced by KLA Tencor.

Banks and insurance companies also have the potential for superior dividend growth. Lower interest rates have depressed what financial firms can earn on loans and other assets. Given recent commentary out of the Federal Reserve, short-term interest rates are likely to continue rising. The tightening labor market, faster economic growth and some hints of inflation point to rising long-term rates.

Higher interest rates should boost earnings for financial companies, leading to higher dividend payouts. Banks in particular have plenty of capital and regulators have been allowing healthy dividend increases in recent years. Regional banks are in the best position as Congress is crafting legislation that would reduce regulations for midsized banks. As a couple of examples, BB&T raised its regular dividend 10% over the last year plus paid a special. Huntington Bancshares increased its dividend 37%. No one would expect that type of increase year after year, but compounding double-digit increases for only a few years can raise yields dramatically.

The landscape is changing for income-equity stocks. Investors chasing yield have bid up the share prices for many utilities, consumer staples and real estate stocks—pushing down their yields. With few exceptions, growth in these sectors looks tepid, suggesting yields will rise slowly from a lower starting point. Leaning towards dividend growth is the best cure for lackluster yields. The good news is that some technology and financial companies have raised their dividends significantly and have the potential to continue that growth at a good clip driven by superior industry tailwinds.

Footnote: As of March 21, 2018, MHI held Cisco, Texas Instrument, KLA Tencor, BB&T, Huntington Bancshares in its portfolios.

See the Miller/Howard Income-Equity Fund fact sheet for the most recent top 10 holdings.

Before investing you should carefully consider the Fund's investment objectives, risks, charges and expenses. The prospectus contains this and additional information regarding the Fund. To obtain a prospectus, please download from this site or call 1-844-MHFUNDS. The prospectus should be read carefully before investing.

IMPORTANT DISCLOSURES AND RISKS

An investment in the Miller/Howard Income-Equity Fund is subject to risk, including the possible loss of principal. Fund risks include, but are not limited to, the following: Non-U.S. markets may be smaller, less liquid and more volatile than the major markets in the United States and, as a result, Fund share values may be more volatile. Trading in non-U.S. markets typically involves higher expense than trading in the United States. The Fund may have difficulties enforcing its legal or contractual rights in a foreign country. These additional risks may be heightened for securities of companies located in, or with significant operations in emerging market countries.

Depositary receipts may be less liquid than the underlying shares in their primary trading market. Companies that issue dividend yielding equity securities are not required to continue to pay dividends on such stock. The Fund may be exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair the Fund's ability to sell particular securities or close call option positions at an advantageous price or in a timely manner. The Fund invests in small and medium size companies, which carry greater risk than is customarily associated with larger, more established companies.

The Fund may be subject to increased expenses and reduced performance as a result of its investments in other registered investment companies and MLPs. An investment in units of MLPs involves certain risks that differ from an investment in the securities of a corporation. MLP entities are typically focused in the energy, natural resources and real estate sectors of the economy. A downturn in the energy, natural resources or real estate sectors of the economy could have an adverse impact on the Fund. Changes to current tax law could affect the treatment of distributions, including (but limited to) ordinary income, capital gains or return of contribution. The Fund is new with no operating history and there can be no assurance that the Fund will grow to or maintain an economically viable size.

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