Starlight Capital’s high dividend growth strategy delivers industry-leading returns with lower volatility. The strategy has outperformed peers while managing risk effectively and providing investors with consistent, monthly, tax-efficient cash flow
This article was produced in partnership with Starlight Capital
As markets waver and concerns of a potential downturn intensify, investors often find themselves caught between staying invested and seeking the safety of cash. However, Sean Tascatan, senior portfolio manager at Starlight Capital, cautions against assuming cash is risk-free. “While cash might seem safe, inflation erodes its value over time,” he explains. “Investors need to focus on building a resilient portfolio that can outpace inflation and generate strong returns.”
Tascatan’s philosophy, “Offense wins games, but defense wins championships,” reflects his disciplined approach to achieving long-term performance. We interviewed Tascatan to learn how the Starlight Dividend Growth Class ETF (Ticker: SCDG) can provide clients with the growth, stability, tax-efficient monthly cash flow, and peace of mind they have been looking for.
Where offense meets defense
Many investors equate “defensive” investing with cash, bonds or stocks with high dividend yields, promising income but little growth. But as Tascatan points out, these approaches can leave portfolios vulnerable. Cash erodes in the face of inflation, while high-yield investments often carry hidden risks like over-leveraged balance sheets or unsustainable payouts.
Instead, Tascatan advocates for dividend growth investing—an approach that prioritizes companies with a consistent history of raising dividends year after year. “These are businesses that not only survive but thrive in challenging times,” he explains. “They’re well-managed, financially strong, and committed to returning capital to shareholders, hence their ability to raise dividends.”
This adaptability was demonstrated during the U.S. regional bank crisis in March 2023. Financials were hit hard as investors sold these stocks indiscriminately. “We had zero exposure to U.S. Financials at the time in our Starlight Dividend Growth Class,” Tascatan recalls. “But the market dislocation created an opportunity.” We initiated a position in Marsh & McLennan (MMC), a global leader in insurance brokerage and financial consulting, whose stock was unjustly dragged down despite having no credit exposure. As the banking turmoil stabilized, MMC’s stock recovered, delivering strong returns for the Fund.
The power and resilience in dividend growth
The idea behind dividend growth investing is simple: focus on companies that generate stable cash flows, have low debt, and allocate capital wisely. But Starlight Capital’s method goes deeper.
Starlight Capital applies a rigorous screening and research process to identify businesses with enduring competitive advantages—companies capable of growing dividends at an annual rate of 10 percent or more for the Starlight Dividend Growth Class.
Take Broadcom, a key holding in the Fund. The semiconductor giant is riding the artificial intelligence (AI) boom, with revenues from its AI business projected to triple by 2027. “Broadcom exemplifies what we look for,” Tascatan says. “Strong free cash flow, disciplined management, and the ability to grow dividends consistently—even in a volatile market.”
The company’s track record speaks volumes: 14 consecutive annual dividend increases, including a 12 percent hike last year. For Starlight’s dividend growth portfolio, Broadcom delivered exceptional returns, gaining 93 percent in 2023 and another 130 percent in 2024.
Another standout is Waste Connections, a leader in the waste management industry. Its dominance in key regions allows it to generate recurring revenues and command premium pricing. Since initiating its dividend in 2010, Waste Connections has raised payouts by double digits every year. “It’s a business with irreplaceable assets and a strong moat,” Tascatan notes.
Healthcare, too, offers compelling opportunities, driven by the “Silver Tsunami.” By 2030, every baby boomer in the U.S. will be over 65, pushing the senior population past 70 million. This demographic shift is creating a surge in demand for healthcare products and services, benefitting companies with strong moats and consistent cash flow growth. “Healthcare is one of those sectors where demand isn’t just growing—it’s accelerating,” Tascatan says. “There are a lot of oligopolies within healthcare that have strong moats around their business and are seeing increased demand, which ultimately leads to rising cashflows, and that translates into sustainable dividend growth.”
Why the dividend growth strategy works
Dividend growth investing isn’t just about providing income—it’s about long-term wealth creation through compounding. At the core of this strategy lies the concept of Yield on Cost (YOC), which is a company’s current annual dividend payment divided by the original purchase price of the stock.
“Yield on Cost takes into account the benefits of reinvested dividends over time, the true power of compounding,” Tascatan explains. Unlike dividend yield, which compares the current dividend to the current stock price, YOC reflects the growth of income from an investor’s original investment.
Warren Buffett famously highlighted this concept in his annual shareholder letter, referencing his long-term investment in Coca-Cola. After decades of holding the stock, Buffett now enjoys a Yield on Cost of 57 percent - meaning his annual dividend income is more than half of his initial investment.
“Through compounding, a growing dividend doesn’t just enhance income; it transforms total returns,” Tascatan says. “This is why we focus on companies with a demonstrated ability to consistently raise dividends.”
High-yield stocks, while tempting, often carry vulnerabilities, such as high payout ratios and excessive leverage, making them more susceptible to falling revenues during economic downturns. Dividend growth stocks offer a steadier path. Their ability to raise dividends reflects underlying business strength and provides a hedge against inflation.
Over a 51-year period, dividend growth stocks have outperformed high-yield counterparts, delivering higher total returns with significantly less volatility. “It’s about playing the long game,” Tascatan says. “These companies give investors the ability to stay invested and weather the storm, which is critical in uncertain times.”
Tascatan sees this as an investment philosophy for the future, not just for today. “The younger generation often chases high-risk, high-reward investments,” he says. “But they’re in the best position to benefit from the compounding power of dividend growth. It’s a long-term play, but one that pays off in spades, and with Starlight Capital, investors can benefit from a strategy that plays both offense and defense—an all-weather fund.”
