"Small is Beautiful," says Investing Legend, Chuck Royce (WealthTrack)

CHUCK ROYCE: It’s the same story. Dividends are going to be king. Dividend-paying stocks I think are going to be very important ways of compounding wealth in the next decade. I think dividends are critical. I have begun to think that dividends are actually a form of corporate governance that I want to see; that if I see a company generating cash and they are not paying dividends, I want to know why. The cash belongs to us, the shareholders, and we want a sort of fair treatment over time, a fair distribution of that, and a company that is always husbanding cash, and there is obviously a purpose for having some of that because of opportunities, probably is not fairly recognizing their fiduciary role that we should have as shareholders.

CONSUELO MACK: But why do you feel so strongly about that now? Is that something new for you, this emphasis on dividends?

CHUCK ROYCE: In some sense it’s a product of two things. One is, I think we’re in a lower return, 6 to 8% or so for this decade. In a 6 to 8% decade, having a couple percent in the bank day one is 25% home. Even though these numbers are small, I think that really adds to your safety. It’s a form of risk management. You probably are adding to a less volatile enterprise, and it’s a way of getting ahead first. So I just like that zone a lot. It’s also an indicator of quality. Almost always, it’s a higher quality company paying out dividends.

CONSUELO MACK: You were kind enough to give us some examples as far as the global reach. Can you give us some examples again that represent what Royce invests in as far as a company that is paying dividends and responsibly?

CHUCK ROYCE: Most of our high quality companies pay dividends. The examples that we gave before of global companies, they both pay dividends. In the case of just dividend pay or that have also other unique features, I can you two good examples. One is a financial services company, the wonderful company Federated Investors, that runs money market funds around in the United States. They pay a reasonable dividend and I think will benefit terrifically by higher interest rates to come. So that is a great example of what we are looking for where we are getting both.

CONSUELO MACK: You manage 10 funds and you assist on several others. Do you have a favorite? Is there one that you say if you had to buy one of the Royce funds, again for the next two, three, four years, this is where you should be?

CHUCK ROYCE: Do I have a favorite child?

CONSUELO MACK: Yes, exactly, for this particular moment in time.

CHUCK ROYCE: I think the dividend-oriented approach, and we have fund called Royce Dividend Value, I think will do quite well. It straddles the small and the midcap and it has a global reach, and it has a six or seven year record and I think it’s about to shine. But honestly it’s a bad question in that when you have your children lined up, you really can’t put them in categories of who is-- some of them are behaving well today, some of them are not behaving well. So you can’t really judge them the next two years about their behavior in the last two years.

CONSUELO MACK: And Chuck, the final question which we ask all of our guests on WealthTrack, if you had to choose one investment- and you can’t recommend one of your own funds- that we should all own some of in a long-term diversified portfolio, what would it be?

CHUCK ROYCE: That’s always the $64 question. I think one should invest in a pool, not necessarily our pool, of dividend-paying stocks. You will sort of get the best of all worlds in that theme for the next three to five years.

CONSUELO MACK: Chuck Royce from the Royce Funds, thank you so much for being here on WealthTrack.

CHUCK ROYCE: Great. Thank you.

CONSUELO MACK: You can see why Morningstar recently wrote that Royce & Associates is a fund boutique that “grew without losing its soul!”
And on that lovely note we will conclude this edition of WealthTrack. Next week, we will focus on avoiding retirees’ greatest fear- running out of money. We will revisit our conversation with Kiplinger’s insurance expert, Kim Lankford and New York Life’s retirement income security chief, Chris Blunt.
Until then, to watch this program again, please go to our website, wealthtrack.com to see it as a podcast or streaming video. And while you are there, check out our new WealthTrack app, so you can tune in on your smart phone or tablet, wherever and whenever you choose. Thank you for watching and make the week ahead a profitable and a productive one.