'We think they'll achieve record EBITDA': Stevens on Verizon

Key Concepts

• Dividend Payer (Bond Proxy): Stocks with consistent dividend payments and high, bond-like yields, typically used for stability in volatile markets.
• Dividend Growth Stock: Companies with strong earnings growth and high returns on capital that prioritize increasing dividend payouts over time.
• Dividend Value: Undervalued stocks currently out of favor with the market, expected to recover as fundamentals improve.
• Tangible Book Value (TBV): A valuation metric representing the net asset value of a company, excluding intangible assets like goodwill.
• Free Cash Flow (FCF): The cash a company generates after accounting for cash outflows to support operations and maintain capital assets.
• Return on Invested Capital (ROIC): A measure of how well a company uses its capital to generate returns.

---

Investment Philosophy: The Crestalta Framework

Josh Stevens, CIO at Crestalta Investment Management, argues that while the market is currently fixated on AI, investors should prioritize dividend-paying stocks to provide "balance and ballast" to their portfolios. He suggests that dividend stocks act as a necessary counterweight to high-growth AI trades, protecting portfolios against potential market corrections.

Crestalta employs a three-pillar framework for selecting dividend stocks:

1. Bond Proxies: Defensive stocks that perform well in rough markets.
2. Dividend Growth: Companies with strong total shareholder returns and earnings growth.
3. Dividend Value: Depressed stocks with unique catalysts for future recovery.

---

Hot Picks: Detailed Analysis

1. Verizon (Category: Dividend Payer / Bond Proxy)

• Yield: Over 6%.
• Rationale: Verizon has a 20-year track record of consistent dividend increases. The company is currently undergoing a turnaround focused on margin improvement and top-line subscriber growth.
• Financial Health: The company has raised its earnings per share (EPS) guidance for the year. Stevens notes that free cash flow is approximately two times the dividend payment, indicating a high level of safety for the payout.

2. Huntington Bank Shares (Category: Dividend Value)

• Yield: Approximately 3.6%.
• Rationale: The stock has traded sideways for 12–15 months due to recent acquisitions (Cadence, Veritex, and units from Janney Montgomery Scott). These moves expanded the bank's geographic footprint into the Sunbelt and strengthened its capital markets division.
• Growth Thesis: As the company digests these acquisitions, Stevens expects improved returns on capital, leading to multiple expansion, dividend growth, and increased share buybacks.
• Valuation: Currently trading at 1.6–1.7 times tangible book value, with a target of 2 times as fundamentals improve.

3. Cactus Incorporated (Category: Dividend Growth)

• Sector: Energy (Pressure control and spoolable technologies).
• Rationale: Cactus is noted for its capital discipline and strong balance sheet. A recent joint venture (JV) with Baker Hughes has successfully diversified its revenue base from a US-domestic focus to a global scale.
• Growth Thesis: The company maintains high free cash flows and a strong focus on ROIC. Stevens believes the dividend will grow in tandem with earnings, supported by opportunistic share buybacks, regardless of oil price volatility.

---

Synthesis and Conclusion

The core takeaway from the discussion is that dividend-paying stocks are not merely "income plays" but essential tools for risk management. By categorizing stocks into bond proxies, growth, and value, investors can build a resilient portfolio that survives market volatility. The specific picks—Verizon for stability, Huntington for value recovery, and Cactus for growth—demonstrate how investors can leverage different corporate strategies (turnarounds, M&A integration, and global expansion) to ensure sustainable dividend income and long-term capital appreciation.