Home » Navigating 2025 with a Quality-Driven Approach
Navigating 2025 with a Quality-Driven Approach
Brookmont Capital Management
As we enter 2025, the investment landscape demands a renewed focus on quality. While traditional growth and value blended allocations have historically helped reduce portfolio volatility and improve performance, this year presents unique challenges. These include inflationary pressures, uncertainties around Fed rate cuts, heightened geopolitical uncertainties, potential tariff escalations, and other policy-driven volatility. This underscores the importance of integrating the quality factor along with “value” and “growth” styles which can cultivate greater downside protection and less volatility, while still offering growth potential for long-term investors.
Quality stocks that we seek are uniquely positioned to navigate the challenges of 2025 due to their sustainable business models, pricing power, strong balance sheets, robust cash flows, and shareholder friendly capital policies including reliable dividend yields. Here’s why they stand out in 2025:
Elevated Interest Rates and Persistent Inflation: Inflation and elevated interest rates remains a significant concern in 2025. Quality companies, characterized by low leverage and robust interest coverage ratios, are better equipped to manage high financing costs and sustain profitability. These companies often possess pricing power, enabling them to pass increased costs onto customers, thereby shielding margins during periods of high inflation.
Earnings Stability: Quality companies prioritize not only revenue growth but also profitability and efficient use of capital, thereby providing dependable performance during periods of economic uncertainty. As the chart on the right illustrates that compared to high dividend stocks, growth stocks and value stocks quality stocks exhibit a lower standard deviation of trailing twelve months earnings growth. Significant policy changes, such as potentially large tariff escalations, could trigger market volatility, but the resilience of quality companies provides stability and downside protection. They are generally better equipped to absorb shocks from abrupt changes in policy as they are financially stable companies with resilient business model.
Reduced Volatility: Quality stocks offer a unique blend of growth potential and reduced volatility, making them a better fit for long-term portfolios compared to the sharp corrections often seen in growth stocks or the risks of value traps. In 2025, this balance becomes particularly critical as macroeconomic uncertainties demand investments that can deliver consistent returns without excessive risk.
Brookmont: The Solution for Quality in 2025
With a macro backdrop that includes policy uncertainties, elevated interest rates, persistent inflation, combined with slowing consumer spending and increased geopolitical tension, the team at Brookmont believes that focusing on quality companies with solid balance sheets and durable business models is the best way to minimize risk. Brookmont’s rigorous evaluation process includes analyzing companies’ cash flows from operations, while considering investing and financing cash flows, to gauge their ability to meet capital allocation needs. This process has helped the Brookmont Dividend Growth Strategy (DGS) outperform its index and other factors during years of negative returns. (see Graph)
The Brookmont Dividend Growth Strategy has a weighted average net leverage ratio ((Gross Debt – Cash & Cash Equivalents) / TTM Adjusted EBITDA)) of 1.82, which is 0.33 lower than the Russell 1000 Value, indicating a lower level of debt. The strategy also has an interest coverage ratio (TTM Adjusted EBIT / Interest Expense) of 25.64, which is 4.89 higher than the Russell 1000 Value; this demonstrates that, on average, the companies in the Brookmont Dividend Growth Strategy are more able to pay their interest and comfortably sustain their current leverage levels.
Brookmont Capital Management is a registered investment advisor that invests in domestic and global securities.
Brookmont Capital is defined as an independent investment management firm that is not affiliated with any parent organizations.
A complete description of Brookmont’s performance calculation methodology, including a complete list of each security that contributed to the performance of this Brookmont portfolio is available upon request.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases has not been updated through the date of the distribution of this letter. While such sources are believed to be reliable for the purposes used herein, Brookmont does not assume any responsibility for the accuracy or completeness of such information.
These individual securities do not represent all of the securities purchased, sold, or recommended for this Brookmont portfolio and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
The Brookmont Dividend Growth Strategy returns are based on an asset-weighted composite of discretionary accounts that include 100% of the recommended holdings. Individual accounts will have varying returns, including those invested in the Strategy. The reasons for this include 1) the period of time in which the accounts are active, 2) the timing of contributions and withdrawals, 3) the account size, and 4) holding other securities that are not included in the Strategy. Dividends and capital gains are not reinvested. The Strategy does not utilize leverage or derivatives. Returns are based on U.S. dollars. The inception of the Strategy is January 1, 2008.
The Brookmont Dividend Growth Strategy Composite contains fully discretionary accounts with similar value equity investment strategies and objectives. For comparison purposes, the Dividend Growth Strategy Composite is measured against the Russell 1000 Value Index. The Russell 1000 Value Index measures the performance of the large-cap segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. There is no representation that this index is an appropriate benchmark for such a comparison. You cannot invest directly in an index, which also does not take into account trading commissions and costs. The volatility of this index may be materially different from the performance of the strategy.
The Brookmont Core Dividend Strategy returns are based on an asset-weighted composite of discretionary accounts that include 100% of the recommended holdings. Individual accounts will have varying returns, including those invested in the Strategy. The reasons for this include, 1) the period of time in which the accounts are active, 2) the timing of contributions and withdrawals, 3) the account size, and 4) holding other securities that are not included in the Strategy. Dividends and capital gains are not reinvested. The Strategy does not utilize leverage or derivatives. Returns are based in U.S. dollars. The inception of the Strategy is January 1, 2015.
The Brookmont Core Dividend Strategy Composite contains fully discretionary accounts with similar value equity investment strategies and objectives. For comparison purposes, the Core Dividend Strategy Composite is measured against the Russell 1000 Value Index. The Russell 1000 Value Index measures the performance of the large-cap segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower than expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. There is no representation that this index is an appropriate benchmark for such comparison. You cannot invest directly in an index, which also does not take into account trading commissions and costs. The Volatility of this index may be materially different from the performance of the strategy.
The Brookmont Quality Growth Strategy returns are based on an asset-weighted composite of discretionary accounts that include 100% of the recommended holdings. Individual accounts will have varying returns, including those invested in the Strategy. The reasons for this include, 1) the period of time in which the accounts are active, 2) the timing of contributions and withdrawals, 3) the account size, and 4) holding other securities that are not included in the Strategy. Dividends and capital gains are not reinvested. The Strategy does not utilize leverage or derivatives. Returns are based in U.S. dollars. The inception of the Strategy is January 1, 2015.
The Brookmont Quality Growth Strategy Composite contains fully discretionary accounts with similar value equity investment strategies and objectives. For comparison purposes, the Dividend Growth Strategy Composite is measured against the Russell 1000 Index. The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower than expected growth values. The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment.
Brookmont’s returns do include reinvestment of dividends and are shown gross-of-fees. All transaction costs are included. The Russell 1000 Value cumulative return includes reinvestment of dividends and capital gains. During a rising market, not reinvesting dividends could have a negative effect on cumulative returns.
Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. Net-of-fees performance was calculated using actual management fees. Additional information regarding the policies for calculating and reporting returns is available upon request.
Your account returns might vary from the composites returns if you own securities that are not included in the Strategy or if your portfolio dollar-cost averaged into the Strategy during the reporting period.
The firm maintains a complete list and description of composites, which is available upon request. Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. The composite policy requires the temporary removal of any portfolio incurring a client-initiated significant cash inflow or outflow of at least 15% of portfolio assets. The temporary removal of such an account occurs at the beginning of the month in which the significant cash flow occurs and the account re-enters the composite at the beginning of the month which follows the cash flow by at least 30 days. Additional information regarding the treatment of significant cash flows is available upon request.
Brookmont Capital Management claims compliance with the Global Investment Performance Standards (GIPS®). To receive a complete list and description of Brookmont’s composites and a presentation that adheres to GIPS standards, please contact Suzie Begando at 214-953-0190 or write Brookmont Capital Management, 5950 Berkshire Lane, Suite 1420, Dallas, TX 75225.
The Brookmont Dividend Growth Strategy is available through several institutional platforms and registered investment advisors that are not affiliated with Brookmont Capital Management. The minimum investments and advisory fees required differ from one firm to another.
Brookmont Capital does not provide comprehensive portfolio management services for investors who have not signed an Investment Management Agreement with our firm.
Navigating 2025 with a Quality-Driven Approach
Brookmont Capital Management
As we enter 2025, the investment landscape demands a renewed focus on quality. While traditional growth and value blended allocations have historically helped reduce portfolio volatility and improve performance, this year presents unique challenges. These include inflationary pressures, uncertainties around Fed rate cuts, heightened geopolitical uncertainties, potential tariff escalations, and other policy-driven volatility. This underscores the importance of integrating the quality factor along with “value” and “growth” styles which can cultivate greater downside protection and less volatility, while still offering growth potential for long-term investors.
Quality stocks that we seek are uniquely positioned to navigate the challenges of 2025 due to their sustainable business models, pricing power, strong balance sheets, robust cash flows, and shareholder friendly capital policies including reliable dividend yields. Here’s why they stand out in 2025:
Elevated Interest Rates and Persistent Inflation: Inflation and elevated interest rates remains a significant concern in 2025. Quality companies, characterized by low leverage and robust interest coverage ratios, are better equipped to manage high financing costs and sustain profitability. These companies often possess pricing power, enabling them to pass increased costs onto customers, thereby shielding margins during periods of high inflation.
Earnings Stability: Quality companies prioritize not only revenue growth but also profitability and efficient use of capital, thereby providing dependable performance during periods of economic uncertainty. As the chart on the right illustrates that compared to high dividend stocks, growth stocks and value stocks quality stocks exhibit a lower standard deviation of trailing twelve months earnings growth. Significant policy changes, such as potentially large tariff escalations, could trigger market volatility, but the resilience of quality companies provides stability and downside protection. They are generally better equipped to absorb shocks from abrupt changes in policy as they are financially stable companies with resilient business model.
Reduced Volatility: Quality stocks offer a unique blend of growth potential and reduced volatility, making them a better fit for long-term portfolios compared to the sharp corrections often seen in growth stocks or the risks of value traps. In 2025, this balance becomes particularly critical as macroeconomic uncertainties demand investments that can deliver consistent returns without excessive risk.
Brookmont: The Solution for Quality in 2025
With a macro backdrop that includes policy uncertainties, elevated interest rates, persistent inflation, combined with slowing consumer spending and increased geopolitical tension, the team at Brookmont believes that focusing on quality companies with solid balance sheets and durable business models is the best way to minimize risk. Brookmont’s rigorous evaluation process includes analyzing companies’ cash flows from operations, while considering investing and financing cash flows, to gauge their ability to meet capital allocation needs. This process has helped the Brookmont Dividend Growth Strategy (DGS) outperform its index and other factors during years of negative returns. (see Graph)
The Brookmont Dividend Growth Strategy has a weighted average net leverage ratio ((Gross Debt – Cash & Cash Equivalents) / TTM Adjusted EBITDA)) of 1.82, which is 0.33 lower than the Russell 1000 Value, indicating a lower level of debt. The strategy also has an interest coverage ratio (TTM Adjusted EBIT / Interest Expense) of 25.64, which is 4.89 higher than the Russell 1000 Value; this demonstrates that, on average, the companies in the Brookmont Dividend Growth Strategy are more able to pay their interest and comfortably sustain their current leverage levels.
Brookmont Capital Management is a registered investment advisor that invests in domestic and global securities.
Brookmont Capital is defined as an independent investment management firm that is not affiliated with any parent organizations.
A complete description of Brookmont’s performance calculation methodology, including a complete list of each security that contributed to the performance of this Brookmont portfolio is available upon request.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases has not been updated through the date of the distribution of this letter. While such sources are believed to be reliable for the purposes used herein, Brookmont does not assume any responsibility for the accuracy or completeness of such information.
These individual securities do not represent all of the securities purchased, sold, or recommended for this Brookmont portfolio and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
The Brookmont Dividend Growth Strategy returns are based on an asset-weighted composite of discretionary accounts that include 100% of the recommended holdings. Individual accounts will have varying returns, including those invested in the Strategy. The reasons for this include 1) the period of time in which the accounts are active, 2) the timing of contributions and withdrawals, 3) the account size, and 4) holding other securities that are not included in the Strategy. Dividends and capital gains are not reinvested. The Strategy does not utilize leverage or derivatives. Returns are based on U.S. dollars. The inception of the Strategy is January 1, 2008.
The Brookmont Dividend Growth Strategy Composite contains fully discretionary accounts with similar value equity investment strategies and objectives. For comparison purposes, the Dividend Growth Strategy Composite is measured against the Russell 1000 Value Index. The Russell 1000 Value Index measures the performance of the large-cap segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. There is no representation that this index is an appropriate benchmark for such a comparison. You cannot invest directly in an index, which also does not take into account trading commissions and costs. The volatility of this index may be materially different from the performance of the strategy.
The Brookmont Core Dividend Strategy returns are based on an asset-weighted composite of discretionary accounts that include 100% of the recommended holdings. Individual accounts will have varying returns, including those invested in the Strategy. The reasons for this include, 1) the period of time in which the accounts are active, 2) the timing of contributions and withdrawals, 3) the account size, and 4) holding other securities that are not included in the Strategy. Dividends and capital gains are not reinvested. The Strategy does not utilize leverage or derivatives. Returns are based in U.S. dollars. The inception of the Strategy is January 1, 2015.
The Brookmont Core Dividend Strategy Composite contains fully discretionary accounts with similar value equity investment strategies and objectives. For comparison purposes, the Core Dividend Strategy Composite is measured against the Russell 1000 Value Index. The Russell 1000 Value Index measures the performance of the large-cap segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower than expected growth values. The Russell 1000 Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. There is no representation that this index is an appropriate benchmark for such comparison. You cannot invest directly in an index, which also does not take into account trading commissions and costs. The Volatility of this index may be materially different from the performance of the strategy.
The Brookmont Quality Growth Strategy returns are based on an asset-weighted composite of discretionary accounts that include 100% of the recommended holdings. Individual accounts will have varying returns, including those invested in the Strategy. The reasons for this include, 1) the period of time in which the accounts are active, 2) the timing of contributions and withdrawals, 3) the account size, and 4) holding other securities that are not included in the Strategy. Dividends and capital gains are not reinvested. The Strategy does not utilize leverage or derivatives. Returns are based in U.S. dollars. The inception of the Strategy is January 1, 2015.
The Brookmont Quality Growth Strategy Composite contains fully discretionary accounts with similar value equity investment strategies and objectives. For comparison purposes, the Dividend Growth Strategy Composite is measured against the Russell 1000 Index. The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower than expected growth values. The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment.
Brookmont’s returns do include reinvestment of dividends and are shown gross-of-fees. All transaction costs are included. The Russell 1000 Value cumulative return includes reinvestment of dividends and capital gains. During a rising market, not reinvesting dividends could have a negative effect on cumulative returns.
Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. Net-of-fees performance was calculated using actual management fees. Additional information regarding the policies for calculating and reporting returns is available upon request.
Your account returns might vary from the composites returns if you own securities that are not included in the Strategy or if your portfolio dollar-cost averaged into the Strategy during the reporting period.
The firm maintains a complete list and description of composites, which is available upon request. Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. The composite policy requires the temporary removal of any portfolio incurring a client-initiated significant cash inflow or outflow of at least 15% of portfolio assets. The temporary removal of such an account occurs at the beginning of the month in which the significant cash flow occurs and the account re-enters the composite at the beginning of the month which follows the cash flow by at least 30 days. Additional information regarding the treatment of significant cash flows is available upon request.
Brookmont Capital Management claims compliance with the Global Investment Performance Standards (GIPS®). To receive a complete list and description of Brookmont’s composites and a presentation that adheres to GIPS standards, please contact Suzie Begando at 214-953-0190 or write Brookmont Capital Management, 5950 Berkshire Lane, Suite 1420, Dallas, TX 75225.
The Brookmont Dividend Growth Strategy is available through several institutional platforms and registered investment advisors that are not affiliated with Brookmont Capital Management. The minimum investments and advisory fees required differ from one firm to another.
Brookmont Capital does not provide comprehensive portfolio management services for investors who have not signed an Investment Management Agreement with our firm.