Scott Davis of the Columbia Dividend Income fund is beating the index by focusing on free cash flow.
“Show me the money” was Jerry Maguire’s phrase, but it could just as well describe veteran portfolio manager Scott Davis’ approach to hunting for dividend-paying stocks. “Cash is king,” says Davis. “For us it’s about free cash flow from operations minus capital expenditures.” He is less enthused when he sees company cash coming from financial engineering or from issuing stock or bonds or selling assets.
The approach has worked over the long and short term. Since Davis, 59, took the lead on the $8.7 billion Columbia Dividend Income fund (ticker: GSFTX ) in 2001, the fund has returned 8% annually, edging out the Standard & Poor’s 500. The fund has returned 4% over the past year, beating the market and 96% of large-value peers.
Barrons.com spoke with Davis to hear about the fund’s top five positions...