Equity Income


The goal of the Equity Income strategy is for current income.

Investor Profile

The Equity Income strategy is appropriate for those investors who seek taxable income. The investments are in stocks that can increase or decrease with the overall stock market. Therefore, investors should have at least a three-to-five year investment horizon.

Fund Strategy

The portfolio seeks to provide above-average income by investing in 20 stocks that have dividend yields exceeding the stock market average. We will also limit risk by keeping any particular industry or sector to 20% of the total portfolio. While Capstone Investment strives to hold all stocks for at least 12 months to minimize short-term tax consequences, this is not always in the best interest of our investors. Therefore, the investment decision is based on a monthly review of the portfolio unless global and/or portfolio specific events require more frequent review.

Capstone will “hedge” or reduce market exposure when the reward presented by the market is unfavorable based on the risk seen in the valuation and the economic growth in the economy. Valuations based on price-to-earnings and/or present value of cash flow, are combined with our risk/reward matrix to drive decisions on reducing market risk. Specific strategies for hedging the market include purchasing exchange traded funds that increase (decrease) in value when the underlying index (S&P 500, NASDAQ 100 or Russell 2000) declines (increases) in value. Capstone may also choose to use leveraged inverse funds. These funds’ objective is to move in the opposite direction of the market by twice the amount of the market. We will limit the use of these funds to 50% of the account value at the time of investment.

Stock Selection Process

Investments are selected if they meet the following three criteria:

  • Dividend Yield: Comparing the dividend to price, the yield of the company compares favorably to the overall market.
  • Earnings Predictability: Earnings are above average over the last three years and there has not been a deficit in earnings in the last five years.
  • Financial Strength: Look for companies that have a combination of no more than 20% annual income to total debt, interest coverage of at least two times the annual interest cost and/or current assets that exceed current liabilities.