High Dividend Equity Allocation Portfolio, Series 40
Investing in dividend-paying stocks is a time-tested strategy for investors seeking income. Dividends
have traditionally been one of the few constants in the world of investing, helping to buffer volatility in
both good and bad markets and history has shown that, over the long-term, dividends provide a key
component of total return. As interest rates remain low, investors are turning their attention to
The High Dividend Equity Allocation Portfolio provides a convenient way to invest in a broad range of
companies that we believe have shown a solid history of distributing dividends to shareholders.
Portfolio Selection Process
The trust invests in a
diversified portfolio of
stocks of companies from four
distinct portfolio strategies
which are weighted based on
the below allocation.
Through our selection process we seek to find the companies that we believe have the best prospects for
above-average total return.
Identify the universe
The first step in our selection process is to identify each
universe from which we will select the stocks for the four strategies. Each universe contains stocks
selected specifically for each component of the allocation. It should be noted that emerging markets
stocks are included in the universe of stocks from which the International High Dividend stocks are
selected and, if selected, would result in the portfolio having an exposure to emerging markets stocks in
excess of 10% of the portfolio. In addition, emerging markets companies are those which are
incorporated, headquartered or have a significant presence in an emerging market country.
Screen for dividend strength
We then evaluate companies based on multiple
factors and eliminate those companies that do not meet our investment criteria. These criteria are
designed to identify well-capitalized companies with above-average dividend yields and the ability to
sustain current dividend levels.
Examine historical financial results
The next step in our process is to
look for those companies that have earned a net cash flow return on investment that is above the
average of their peers. Historically, companies that have increased their cash flows at a higher rate have
rewarded shareholders with superior total returns.
Select companies with attractive valuations
The final step in our
process is to select companies based on the fundamental analysis of our team of research analysts. The
stocks selected for the portfolio are those that meet our investment objective, trade at attractive
valuations and, in our opinion, are likely to exceed market expectations of future cash flows.
This unit investment trust seeks above-average total return through a combination of capital appreciation and dividend income; however, there is no assurance the objective will be met.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, risks, and
charges and expenses carefully before investing. Contact your financial professional
or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus,
which contains this and other information about the portfolio. Read it carefully
before you invest.
An investment in this unmanaged unit investment trust should be made with an understanding
of the risks involved with owning common stocks, such as an economic recession and the possible
deterioration of either the financial condition of the issuers of the equity securities or the general
condition of the stock market.
You should be aware that the portfolio is concentrated in stocks in the financials sector which involves
additional risks, including limited diversification. The companies engaged in the financials sector are subject
to the adverse effects of volatile interest rates, economic recession, decreases in the availability of capital,
increased competition from new entrants in the field, and potential increased regulation.
An investment in a portfolio containing equity securities of foreign issuers is subject to additional
risks, including currency fluctuations, political risks, withholding, the lack of adequate financial
information, and exchange control restrictions impacting foreign issuers. Risks associated with
investing in foreign securities may be more pronounced in emerging markets where the securities
markets are substantially smaller, less liquid, less regulated and more volatile than the U.S. and
developed foreign markets.
An investment in a portfolio containing small-cap and mid-cap companies is subject to additional
risks, as the share prices of small-cap companies and certain mid-cap companies are often more
volatile than those of larger companies due to several factors, including limited trading volumes,
products, financial resources, management inexperience and less publicly available information.
Large capitalization companies may grow at a slower rate than the overall market.
As the use of Internet technology has become more prevalent in the course of business, the trust
has become more susceptible to potential operational risks through breaches in cybersecurity.
The COVID-19 global pandemic has caused significant volatility and declines in global financial markets, causing losses for investors. The development of vaccines has slowed the spread of the virus and allowed for the
resumption of “reasonably” normal business activity in the United States, although many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging
variants of the disease.
The value of the securities held by the trust may be subject to steep declines or increased volatility
due to changes in performance or perception of the issuers.
This UIT is a buy and hold strategy and investors should consider their ability to hold the trust until
maturity. There may be tax consequences unless units are purchased in an IRA or other qualified plan.