Lazard’s recipe for growing dividends and less volatility

Most of us have a vivid recollection of the Global Financial Crisis (GFC) and the carnage it wreaked on markets and, more importantly, on individuals. What started as a crack snowballed into a full-blown meltdown, seizing up markets and decimating portfolios.

Time heals all wounds, and for those with years on their side, the damage has faded into history as the compounding machine of the markets resumed its course. But not everyone has the luxury of time. For investors approaching or already in retirement, the effects of such a dramatic drawdown can derail a lifetime of hard work and leave retirement plans smouldering.

For Aaron Binsted, portfolio manager / analyst at Lazard Asset Management, it was this exact scenario that seeded the idea for Lazard’s Defensive Australian Equity Fund, designed specifically with pension and pre-pension phase investors in mind.

“The genesis of this whole thing was in the wake of the GFC, which was a huge event in the investing world. Capital drawdowns were 50%, and you had huge income cuts across the board. Lots of people in that pension and pre-pension phase were in products like mortgage funds and they just got wiped out,” says Binsted.

“It was really just sitting there, looking out the window and thinking that there is just got to be a better way to serve the needs of these people. What can we offer?”

In this episode of The Rules of Investing, Binsted discusses the disconnect between markets and the macro, the concept of 'economic diversification' and the under-appreciated dividend growers he is backing on the ASX.

Watch / listen to the episode via the players or read a summary below.

Breaking the ASX concentration trap

In short, the objective is to provide equity market returns with lower volatility and a focus on delivering stable income. It sounds appealing on paper, but execution in the Australian context is not straightforward. Two sectors, resources and financials, make up more than 50% of the ASX 200.

Binsted explains that a core tenet of the philosophy is achieving what he calls “true economic diversification.” That means moving away from the index-heavy habit of putting half of your funds into just two sectors. Instead, stocks in the portfolio have a hard cap of 3%. Since CBA makes up roughly 12% of the index and BHP around 10%, there is a built-in need to look elsewhere for opportunities.

“This is called defensive Australian equities, but that is a portfolio-level attribute. To achieve that, we really want to have very differentiated income streams from the companies going into the portfolio.”

Beyond 'bond proxies'

In practice, this includes an allocation to high-yielding, low-growth companies that typically screen well for dividends. However, Binsted notes that the risk in these companies is that they often act as "bond proxies," making them highly sensitive to interest rate moves.

To counter this, Binsted hunts for companies with solid growth outlooks that pay dividends. These are stocks that might not look like high yielders on face value today but have the potential to grow distributions over time.

“We want a mix of those defensive high-yielding stocks, but also solid stocks that may not be yielding so much today where we expect good dividend growth. We target real dollar income growth for people, not just a high percentage yield.”

Payments platform Cuscal Limited (ASX: CCL) is one example Binsted says fits the dividend grower category. It is a stock many might not immediately associate with income, but with a starting yield of approximately 3% and expected high single-digit to low double-digit growth, it fits the strategy.

He is also finding value in Centuria Industrial REIT (ASX: CIP), along with smaller players like Waypoint REIT (ASX: WPR) and Region Group (ASX: RGN), which he believes carry limited structural or cyclical risk compared to the office sector.

Value investors are often drawn to stocks making headlines for all the wrong reasons. There is a veritable smorgasbord of these on the ASX right now, and Binsted says names such as Aristocrat (ASX: ALL), Mainfreight (NZX: MFT), and CSL Limited (ASX: CSL) have all found a place in the portfolio.

Undoubtedly, CSL has tested the patience of many investors, but Binsted says the value today looks attractive. He started buying last year, noting that at roughly 14 times forward earnings, the valuation is now compelling.

“It really has to be a dismal performer not to do okay from here," Binsted says. "We still think it’s going to deliver solid mid-to-high single-digit growth rates at the top line. With this margin recovery in the near term, the EPS can even be better than that.”

Playing the surge in electric vehicle demand on the ASX

With the Strait of Hormuz in lockdown, one sector catching a tailwind is electric vehicles (EVs). New EV sales experienced a 42% spike in March as consumers moved from gradual adoption to rapid uptake. While Australia does not have a homegrown Tesla, there is indirect exposure through Eagers Automotive (ASX: APE), a business Binsted has followed for many years.

Eagers has effectively cornered a massive slice of the market through a strategic partnership with Chinese EV giant BYD. Binsted recounted a moment during an earnings call where Eagers' CEO, Keith Thornton, was visibly vibrating with excitement while waiting for the BYD announcement to clear the ASX. BYD’s market share in Australia went from zero to 4% in just three years. For the month of March 2026, it was running at 7%.

“Eagers has huge leverage to that growth," Binsted explained. "The Chinese car makers have a huge cost advantage relative to everybody. They are incentivised to send more cars here and, if they want to, they can lower the price further.”

Beyond EVs, Binsted is bullish on their used car business, easyauto123, and their aggressive move into the Canadian market through the Canada One Auto Group acquisition. While he acknowledges that car sales are inherently cyclical, he views Eagers as a cost leader with a robust balance sheet that can weather the inevitable earnings crunch when the economy turns.

The long-term case for Mainfreight

When asked to nominate a stock to hold for the next five years, Binsted put forward the New Zealand-listed Mainfreight. The thesis is not just about trucks and warehouses; it is about a unique corporate culture that he says is almost non-existent in other transport companies.

They measure profitability at the branch level and, crucially, the staff participate in those profits. It is a model that has helped the company grow earnings per share at a 12.5% compound annual growth rate over the last 20 years.

“I don’t think it is at a lot of risk from AI, so I’m confident it is going to be there in the future and it is going to be a bigger business, earning bigger profits," he said.

With its founder-led structure and a "100-year vision," Binsted sees it as a high-certainty compounder. Trading at a discount to the market on an Enterprise Value basis, it represents the kind of "set and forget" quality he wants for investors who cannot afford to get the sequence of their returns wrong.

Managed Fund

Lazard Defensive Australian Equity Fund

Australian Shares

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