This High-Yield Portfolio Will Beat the Market

Sixteen weeks ago, I invested my cold, hard cash into 10 high-yield dividend stocks I believe will beat the market. Let's see the results so far:

Company

Average Cost

Shares

Recent Price

Total Value

Return

Altria (NYSE: MO  ) $24.86 40 $27.29 $1,091.60 9.77%
Philip Morris (NYSE: PM  ) $61.83 16 $68.04 $1,088.64 10.04%
National Grid (NYSE: NGG  ) $45.63 22 $48.94 $1,076.68 7.25%
Annaly Capital Management (NYSE: NLY  ) $17.55 57 $18.48 $1,053.36 5.30%
Frontier Communications (NYSE: FTR  ) $9.36 106 $7.92 $839.52 (15.38%)
Southern Co. (NYSE: SO  ) $37.87 26 $39.58 $1,029.08 4.52%
France Telecom $22.23 45 $21.00 $945.00 (5.53%)
Vodafone Group $28.88 34 $26.55 $902.70 (8.07%)
Eli Lilly $34.48 29 $37.27 $1,080.83 8.09%
Bristol-Myers Squibb $25.37 39 $27.92 $1,088.88 10.05%
Cash   159.53   159.53 0%
Dividends Receivable   132.43   132.43 0%
Total Portfolio       $10,488.25 4.88%
Investment in SPDR S&P 500         (2.16%)
Return vs. SPDR S&P 500 (percentage points)         +7.05

Source: Capital IQ, a division of Standards and Poor's. Data as of June 8, 2011.

Over the past month, the S&P fell 4.31%. Our portfolio expanded its outperformance of the market, moving from outperforming the market by 3.3 percentage points to beating it by more than 7 percentage points. While outperformance is always good, it should be taken with a grain of salt. We're investing for the long term, and it's only been 16 weeks. I firmly believe the results will bear us out.

Movers and shakers
Of our stocks, the biggest mover in the portfolio over the past month was Frontier Communications, whose price fell 7.15%. I plan on using the stock's recent decline to add shares of Frontier Communications to the portfolio. The purchase will be made tomorrow (June 10), so those following the portfolio have time to take advantage at the same price.

While the price has declined, the company is still on track in integrating and expanding the operations it acquired from Verizon last year. The company still generates massive amounts of free cash flow, allowing it to pay the interest on its debt and a sizable dividend which, with the decline in price, comes to a yield of more than 9%.

Money!
There are seven upcoming dividends for the portfolio:

  1. Eli Lilly will pay a dividend of $0.49 on June 10. The ex-dividend date was May 11.
  2. France Telecom will pay a dividend of 1.40 euros on June 15. The ex-dividend date is June 10.
  3. Frontier Communications will pay a dividend of $0.1875 on June 30. The ex-dividend date was June 7.
  4. Philip Morris International will pay a dividend of $0.64 on July 11. The ex-dividend date is June 21.
  5. Altria will pay a dividend of $0.38 on July 11. The ex-dividend date is June 13.
  6. National Grid will pay a dividend of $1.9005 on Aug. 17. The ex-dividend date was June 3.
  7. Vodafone will pay a dividend of GBP 0.605 on Aug. 5. The ex-dividend date was June 1.

Commentary
Our decision to purchase Annaly Capital rather than its offshoot Chimera (NYSE: CIM  ) , which Annaly manages, is paying off as fear has been re-entering the market. Chimera invests in risky mortgages while Annaly only invests in agency-backed mortgages. The market has reacted accordingly the past month, as Annaly has risen 2.3% while Chimera has fallen 12%. Some Fools have joined us in seeing the benefits of investing in Annaly, while others have taken stakes in both.

My Foolish bottom line
I'm highly confident in this portfolio's ability to crush the market over the next decade, and that's why I put $10,000 of my personal cash into these stocks. My strategy is simple. I'm buying strong companies with outsized dividends, reinvesting those dividends, and holding them for the long run. Over the coming year, I'll track my performance, update you when I'm going to reinvest all my dividends, and keep you abreast of news affecting these companies.

In addition to the 10 tickers above, you'll want to consider the 13 names in a free report from Motley Fool expert analysts called "13 High-Yielding Stocks to Buy Today," including one named by a senior retail analyst as "the dividend play of a lifetime." 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 13 high yielders, 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, Frontier, Southern Co., France Telecom, Vodafone, Eli Lilly, and Bristol-Myers Squibb.

The Motley Fool owns shares of Altria, Chimera, Philip Morris International, and Annaly. Motley Fool newsletter services have recommended buying shares of Southern, France Telecom, Philip Morris International, Vodafone, and National Grid. 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 (6) | Recommend This Article (21)

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 June 10, 2011, at 12:23 AM, ratiotracker wrote:

    2 Questions:

    1) I understand that the SPDR S&P 500 has a dividend yield? If so, have you been accounting for its yield in the S&P's return? I feel as though its extremely important that you do so because of the buy and hold nature of this portfolio as well as its basis on dividends.

    2) I am a options amateur, learning in the last few days from the Motley Fool Options Playbook. In this portfolio, have you considered writing covered calls on FTR to make some money back while prices hang out lower than your buy price? If that is not a good idea, I'd love to know why as I am planning on using this in my own portfolio.

  • Report this Comment On June 10, 2011, at 1:32 AM, TMFDanDzombak wrote:

    1) Yes, of course. I use the dividend adjusted price which can be found on Yahoo! Finance. Its pretty scummy when people don't use it.

  • Report this Comment On June 10, 2011, at 1:35 AM, TMFDanDzombak wrote:

    2) In short, no. I'm investing for the long term and don't want to chance having to sell the stock should it get called. FTR can be very volatile and the potential gain from selling covered calls doesn't compensate for the potential dividends lost/tax consequences, etc.

  • Report this Comment On June 10, 2011, at 1:40 AM, mm5525 wrote:

    Funny how so many people throughout my investing career laugh-off dividends as insignificant, but now that interest rates are so incredibly low, suddenly dividends are all the rage. I am glad I learned the important of dividends, particularly to always reinvest them, years ago.

    Dan, have you considered putting some MLP's into future dividend portfolios? Stuff like EPD, MMP, PAA.

  • Report this Comment On June 10, 2011, at 2:54 AM, TMFDanDzombak wrote:

    Yes but not for this one. MLP's are hard to follow and results can be very different given an investors tax situation. I think it would be unduly arduous to include MLPs in something like this.

    That said, for personal portfolios they are definitely something that should be considered. I wrote about them here:

    http://www.fool.com/investing/dividends-income/2011/04/18/ea...

  • Report this Comment On June 10, 2011, at 3:01 PM, mm5525 wrote:

    Nice, Dan. I can't believe I missed that article about MLP's. Good stuff on all fronts, and thanks for re-posting that April article..

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