Defensive value investing is an approach to investing which is designed to help cautious long-term investors build portfolios with the following characteristics:
- High dividend yield today
- High dividend and capital growth over the long-term
- Low risk, low stress and (relatively) low effort
To achieve those goals, the strategy focuses on building a diverse portfolio of around 30 dividend-paying FTSE All-Share companies with the following attributes:
- Quality
- A focused and market leading core business which has existed for decades
- Consistently high returns on capital employed
- Consistent and sustainable revenue, earnings and dividend growth
- Cautious management
- Durable competitive advantages
- Defensive
- Few debt and lease liabilities
- Stable, mature and defensive markets that are expected to continue growing for decades
- Diversity across customers, suppliers and other key relationships
- Little exposure to volatile commodity prices
- Value
- An attractive combination of dividend yield today plus potential dividend growth tomorrow
Defensive value investing in more detail
For a more detailed overview of the whole strategy, take a look at my investment spreadsheet and checklist on the Free Resources page.
And if you want even more detail than that, then you can either buy my book (The Defensive Value Investor) or read through the articles below:
1. Analysing businesses
2. Analysing accounts
- The importance of consistently covered dividends
- How to measure dividend growth and the factors that support it
- How to find quality companies producing consistent and sustainable growth
- Taking account of Return on Capital Employed
- The capital cycle is something every investor should be aware of
- Lessons from a highly cyclical investment
- Measuring debt
- The importance of a strong bank balance sheet
- Debt ratios and pension ratios: Connecting the dots between them