This High-Yield Dividend Portfolio Will Beat the Market

Last Tuesday, I invested my cold, hard cash into 10 high-yield dividend stocks that I believe will beat the market. After one week, let's look at the news from these companies, and see the results:

Company

Average Cost

Shares

Recent Price

Total Value

Return

Altria (NYSE: MO  )

$24.86

40

$24.94

$997.60

0.32%

Philip Morris (NYSE: PM  )

$61.83

16

$62.25

$996.00

0.68%

National Grid (NYSE: NGG  )

$45.63

22

$46.39

$1,020.58

1.67%

Annaly Capital Management (NYSE: NLY  )

$17.55

57

$17.75

$1,011.75

1.14%

Frontier Communications (NYSE: FTR  )

$9.36

106

$8.42

$892.52

-10.04%

Southern Co (NYSE: SO  )

$37.87

26

$38.06

$989.56

0.50%

France Telecom (NYSE: FTE  )

$22.23

45

$22.02

$990.90

-0.94%

Vodafone Group (NYSE: VOD  )

$28.88

34

$28.43

$966.62

-1.56%

Eli Lilly (NYSE: LLY  )

$34.48

29

$34.09

$988.61

-1.13%

Bristol-Myers Squibb (NYSE: BMY  )

$25.37

39

$25.49

$994.11

0.47%

Cash  

 

 

$53.71

0%

Total Portfolio      

$9901.96

-0.98%

Investment In SPY        

-0.68%

Return vs SPY        

-0.30%

Source: Capital IQ, a division of Standard & Poor's.

Last week, the market had its biggest weekly drop since November, with the Dow down 2.1% and the S&P 500 down 1.7%. Unless you've been living under a rock, you know that the market has been spooked by rising oil prices and the situation in Libya and the Middle East. Our portfolio underperformed the market by 0.3%, and since it's only been a week, I'm not worried at all. We're investing for the long term, and the results will bear it out.

Mover & shaker
Of our stocks, the biggest mover in the portfolio the past week was Frontier Communications, which dropped 10%. Frontier's revenue of $1.36 billion missed analyst expectations of $1.39 billion, and its earnings per share of $0.05 missed expectations of $0.10 per share. Investors shouldn't be hugely alarmed. Any company that makes the kind of large merger that Frontier did last year will run into headwinds. While net income suffered, Frontier generated ample cash to pay its dividend and cover the interest payments on its debt. The company's now-8.8% dividend looks more enticing than it did before.

News
Annaly Capital Management:
Annaly announced a large share offering of 75 million new shares at $17.30 per share. No need to worry, though -- Annaly is a REIT, andit has to pay out 90% of its income as dividends. If Annaly wants to expand, it either has to take on more debt, or issue shares. By issuing shares now, the company is keeping its options open to deal with any monetary changes, and setting itself up to continue to profit from the lowest interest rates in years. For more on what the news means for investors in Annaly Capital, click here.

France Telecom: Last week, the company announced full-year earnings of $6.5 billion in 2010, a 62% rise from 2009's profit, helped along by a $1.2 billion cost reduction in its U.K. operations. In France, which accounts for the majority of revenue, the company faces pressure as the government raises the value-added tax on telecom services and competitors decide to eat the increased cost instead of passing it on to consumers. This could affect earnings moving forward, but it will not affect the company's dividend. Earlier in the year, the company announced that it will pay a dividend of 1.40euros ($1.92) in 2011 and 2012, and the company is sticking by its plans.

Altria: Myself and others have highlighted the potentially dire situation for Altria's competition, should the FDA ban menthol cigarettes. While Altria believes "evidence-based information would not support a recommendation to ban menthol or otherwise impose additional restrictions that would deprive adult smokers of menthol cigarettes," if the ban does go through, Altria will benefit hugely, and rival Lorillard will be crushed.

Adding credence to this view, last week Lorillard and Reynolds American sued the FDA to stop it from receiving or relying on recommendations from its tobacco-products advisory committee. The firms believe that the committee fails to meet fair-balance requirements, and that certain members have conflicts of interest.

Money!
There are two upcoming dividends for the portfolio:

  1. Frontier Communications will pay a dividend of $0.1875 per share on March 31, 2011. The ex-dividend date is March 7, 2011.
  2. Altria will pay a dividend of $0.38 per share on April 11. The ex-dividend date is March 11, 2011.

My Foolish bottom line
I will keep tracking my performance and updating you on the portfolio. To follow the news on all these companies, I recommend that you sign up for the Fool's free My Watchlist tool. Consider the 10 tickers above along with the six names from a new, free report from the Motley Fool's Founders called 6 Stocks David and Tom Gardner Think You Should Be Watching. Tens of thousands have requested access to this report, and today I invite you to download it at no cost to you. To get instant access to the names of these six stocks, simply click here -- it's free.

Dan Dzombak can be found on his Twitter account: @DanDzombak. He owns shares of Altria, Philip Morris, National Grid, Annaly Capital Management, Frontier, Southern Co, France Telecom, Vodafone Group, Eli Lilly, and Bristol-Myers Squibb.

Vodafone is a Motley Fool Inside Value recommendation. Philip Morris is a Motley Fool Global Gains pick. France Telecom, National Grid, and Southern are Motley Fool Income Investor picks. The Fool owns shares of Altria, Annaly, and Philip Morris. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2011, at 11:06 PM, pryan37bb wrote:

    Re: Altria/Lorillard/menthol, an FDA panel announced findings recently that said...I can't remember specifically, but it was good for Lorillard and menthols, and their stock responded accordingly. But it's still uncertain whether the FDA will adopt the panel's findings and leave it at that. Regardless, Altria and PM still have very good prospects, and I think this portfolio should handily beat the other portfolio modeled instead on dividend growth, as well as the market.

  • Report this Comment On March 03, 2011, at 9:07 AM, jimmy4040 wrote:

    Why not T or VZ? I can't imagine a future where people use their cell phones less than today. Why not get the 5-6% and the possibility of significant share price appreciation?

    In a down market, you might be better off with pharma, but on the other hand NLY would get nailed. In any kind of continuing broad based maket recovery T and VZ will crush these guys.

  • Report this Comment On March 03, 2011, at 9:23 AM, Dividendpartisan wrote:

    I agree with jimmy4040 (above) and would consider adding T. Out of the current list, I like SO and NLY.

    DivPartisan

    www.dividendpartisan.com

  • Report this Comment On March 03, 2011, at 11:03 AM, nbr3bagshotrow wrote:

    Did you look at any pipeline companies? KMP, ETP, EPP, LINE? These are high quality high dividend companies which will do well with higher oil prices.

  • Report this Comment On March 03, 2011, at 1:30 PM, jsrr1950 wrote:

    Bill Gross was big on NLY in the Barron's Roundtable a month ago, but with the caution that we don't have another melt down. Any thoughts about that?

  • Report this Comment On March 03, 2011, at 7:08 PM, energysystems wrote:

    jimmy400-VOD owns 45% of Verizon Wireless, currently trades at a much lower PE than V, has a lower payout ratio then both T and V, and management has said they'll hike the divi by 7% each of the next 3 years. That, and they have over 300 million clients worldwide. It's in my portfolio, and I'm long VOD. Although I will also be adding T to my portfolio, hopefully soon it'll have a dropoff back into the lower 20s(although it's technicals are excellent at the current price).

    Outside of a handful of stocks, my entire portfolio is made up of high dividend stocks(along with MLPs). It's a proven winner. Just don't get swept into buying at a bad price. Cost basis, payout ratio, debt, P/E all have to be looked out. No reason getting caught up with a company that doesn't have solid fundamentals for an incremental dividend yield difference.

  • Report this Comment On March 04, 2011, at 9:26 AM, gimponthego wrote:

    "Just don't get swept into buying at a bad price." Thanks for those wise words! I am in the process of adding the above list of stocks in the article "at my price" GTC.

    Those in addition to others such as SLW, FCX, AUY, etc. I believe, after spending a lot of time going over each one, that this year should be better than last. Trading within my IRA keeps the tax man away (for now!)

    I've learned a lot from all of you and The Fools. Take Care And Stay Well. Johnny

  • Report this Comment On March 14, 2011, at 11:13 AM, varney wrote:

    Are the dividends from NGG qualified (i.e. do they get taxed at CG rates instead of regular income tax rates)?

    Bruce

  • Report this Comment On March 15, 2011, at 7:58 PM, nontechie wrote:

    Jeez, this is my portfolio except rather than France telecom I've got Telefonica (TEF) and it needs a high dividend energy stock, say Total or ENI or even Chesapeake's convertible preferred.

  • Report this Comment On March 15, 2011, at 8:08 PM, nontechie wrote:

    NLY will not "get nailed" in a down market as someone above says. NLY's business is so misunderstood. Fundamentally, what would hurt them is a flattening yield curve--which would probably be the result of an economy that is improving enough for the Fed to unchain short rates, and in that situation, in turn, we would likely see a pretty good market.

    Actually, I loaded upon NLY in 2009 when we had not just a "down" market but a full blown panic market because I knew the sellers didn't understand it--it has been a double not even counting the dividends.

    Buy or sell it based on the accurately-understood fundamentals and you'll do fine.

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