The World's Best Dividend Portfolio

In June, I invested my money equally in a selection of 10 high-yield dividend stocks. Those names offer triple the yield of the average S&P 500 stock. You can read all the details. Now let's check out the results so far.

Company

Cost Basis

Shares

Yield

Total Value

Return

Southern (NYSE: SO  ) $39.71 25.0818 4.3% $1,112.88 11.7%
Exelon (NYSE: EXC  ) $41.82 23.818 5.4% $1,123.04 (5.8%)
National Grid $48.90 20.3693 5.8% $1,047.80 5.2%
Philip Morris International $68.49 14.5429 3.7% $1,224.95 23%
Annaly Capital (NYSE: NLY  ) $18.24 65.5 13.8% $1,080.75 (7.9%)
Frontier Communications (NYSE: FTR  ) $7.88 126.4243 8.9% $568.91 (42.9%)
Plum Creek Timber $38.42 26 4.3% $1,025.44 2.7%
Brookfield Infrastructure Partners $26.12 38.2825 4.7% $1,134.69 13.5%
Vodafone $26.52 37.5566 4.9% $1,030.93 3.5%
Seaspan (NYSE: SSW  ) $14.61 69 5.4% $1,277.19 26.7%
Cash       $29.45  
Dividends Receivable       $24.36  
Total Portfolio       $10,680.38 3.2%
Investment in SPY
(Including Dividends)
        8.3%
Relative Performance
(Percentage Points)
        (5.1)

Source: S&P Capital IQ.

Our total portfolio performance weakened overall from the previous week, moving from 3.8% to 3.2% this week. We lost ground on the S&P, even as it moved ahead, and our portfolio is underperforming by 5.1 percentage points. We have four stocks outperforming the index and seven in positive territory.

I just reinvested $195.75 of portfolio money into shares of Exelon. The yield sits at a tidy 5.4%, and the shares have experienced weakness of late. I had considered reinvesting in Frontier Communications, but the recent dividend cut to $0.10 per share per quarter and the weak free cash flow guidance for 2012 have spooked me for now.

Note that my calculation of return on investment is penalized by dividend reinvestment. Although I report a return on investment of 3.2%, the actual total portfolio return so far is 6.9% -- which you can see when you realize that the total portfolio value of $10,680.38 sits well above the approximately $10,000 ($9,986.58, to be perfectly accurate) we initially deposited in the account. On those calculations, we're only mildly underperforming the S&P, but we have a much higher yield. I'll adjust the calculation in future weeks to more accurately reflect our returns, but I wanted to explain it here first. So I'm still confident in the long-run nature of this portfolio, and I fully expect it to outperform.

In its latest earnings report, we got some dubious news for Annaly Capital, one of the most popular dividend stocks because of its massive payout. In this video article called "Bad News for the Market's Hottest Dividends," I explain why investors should be cautious on the mortgage REITs going forward (hint: it has to do with the sustainability of their dividend).

Dividends and other announcements
We're just about through earnings season, and we'll have a bunch of companies going ex-dividend in the next few weeks:

  • Seaspan announced its recent quarterly results and had great news for dividend investors. The company saw cash available for distribution increase 19%, to $65.5 million. And it bumped its payout by 33%, to $1 per year. Even better is that at that level, Seaspan would still be paying out only about 25% of its cash available for distribution, meaning it has plenty of room to boost the payout more. The company also announced a $50 million repurchase program. It doesn't get much better than this.
  • The U.S. Nuclear Regulatory Commission has recommended that the first of three proposed changes to how nuclear plants operate be implemented. The changes include reactor design modification and operating changes and are expected to cost millions for plant operators such as Southern and Exelon. The rules will be implemented by the end of 2016.

Dividend news:

  • Southern went ex-dividend on Feb. 2 and pays out a dividend of $0.4725 per share on March 5.
  • Exelon went ex-dividend on Feb. 13 and pays out $0.525 per share on March 8.
  • Plum Creek went ex-dividend on Feb. 15 and paid out $0.42 per share on March 2.

All that, of course, means more money coming into our pockets.

It's fun to sit back and get paid, and with the market volatility, we might have a good chance to reinvest those dividends at good prices. Europe continues to be an absolute mess, and continued bad news will probably have stocks plunging again. If they do, I'll be inclined to pick more shares up.

Foolish bottom line
I've been a fan of big dividends for a while, and I think this portfolio will outperform the market over time through the power of dividends. As I promised in the original article, I'll be holding these stocks for at least a year and will continue to track the portfolio over the course of the year, including news on these companies.

If you like dividends, consider these 10 tickers along with the 11 names from a brand-new free report from The Motley Fool's expert analysts called "Secure Your Future With 11 Rock-Solid Dividend Stocks." Today I invite you to download it at no cost to you. Get instant access to the names of these 11 high yielders -- it's free.

Jim Royal, Ph.D., owns shares of the 10 portfolio stocks mentioned in the table. The Motley Fool owns shares of Seaspan, Brookfield Infrastructure, Annaly, Plum Creek, and Philip Morris and has created a covered strangle position on Plum Creek. Motley Fool newsletter services have recommended buying shares of Exelon, National Grid, Philip Morris, Vodafone, Southern, and Brookfield Infrastructure, as well as writing a covered straddle position in Seaspan and a covered strangle position in Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (9) | Recommend This Article (13)

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 03, 2012, at 2:53 PM, rusd wrote:

    Thanks Jim. Nice article to read while looking to build a dividend portfolio myself. Keep it going.

  • Report this Comment On March 03, 2012, at 6:22 PM, rd80 wrote:

    Hi Jim,

    I've enjoyed the series, but wonder why you continue holding Frontier after a dividend cut. After all, this is titled 'The World's Best Dividend Portfolio' and a stock that just cut the dividend hardly seems like 'World's Best'.

    Within telcos, seems like you'd get nearly as much yield, but with stronger fundamentals and no divvy cut stigma from VZ or T. Or just move the money over to bump up the VOD position. Although, were it my portfolio, I'd consider swapping FTR out for a dividend-paying tech stock. INTC would be (and is) my first choice, but MSFT or CSCO would also provide decent yield and a little more diversification.

    It's always tough to cut an underwater position loose, but recommend asking yourself if you had cash instead of the FTR shares, would you open a position in FTR?

    Disclosure: Long T and INTC.

  • Report this Comment On March 04, 2012, at 12:50 AM, InvestWhatWorks wrote:

    @rd80

    By his own self-imposed rules, he's not allowed to get rid of FTR until sometime in June (12-months after he bought it).

    But Jim, if you did want to get rid of Frontier sooner rather than later, I think we'd all just give you a free pass on that one. Though maybe it has finally reached bottom (... maybe).

  • Report this Comment On March 04, 2012, at 1:45 AM, TMFRoyal wrote:

    Hi, rd80,

    Exactly what InvestWhatWorks said. The rule when I began in June 2011 was to hold everything for at least a year. I don't want to renege at this point, even though FTR has done quite poorly. We'd really be rocking the S&P without it.

    And thanks, InvestWhatWorks. I'll hold FTR for now, given that it's near a 52-week low and my promise, though I'm not at all impressed with the FCF guidance for 2012 (shrinking from $1.1 billion in 2011 to $900 million to $1,000 mn in 2012). I may consider moving to T when June comes around (if I want to stay in a telecom play), though I do have a few other dividend ideas in mind as well. I'm considering several options now for what to do when June rolls around.

    Thanks for continuing to read.

    Foolish best,

    Jim

  • Report this Comment On March 04, 2012, at 3:10 AM, InvestWhatWorks wrote:

    Jim:

    What happens at the end of this initial 12-months when you can start switching out stocks? Will you institute another 12-month policy with any new stocks you pick-up or not restrict yourself this time around?

    After Frontier, I can understand if you maybe want to change up that policy. But I do I like the idea of tracking your yearly progress through the ups and downs of the market, no matter what (and have been reading your monthly updates because of just that; though I'll keep on reading either way).

    Or: New 12-month policy, but one 'Get Out of Jail Free' card, lol.

  • Report this Comment On March 04, 2012, at 2:56 PM, rd80 wrote:

    Jim and InvestWhatWorks,

    Thanks for the answers, I suspected that was the case.

    Concur with IWW that the 'hold for one-year' rule should have at least one mulligan. In fact, I think if you decided to sell a position early, explaining the reason(s) behind the sell would add to the series.

    Fool on, Russ

  • Report this Comment On March 04, 2012, at 3:54 PM, TMFRoyal wrote:

    Hi, Russ and IWW,

    Those are exactly the issues that I'm trying to work out -- i.e., how to continue the series, invest in some new stocks, sell some old ones, and determine the fairest way to manage that process (mulligans, etc).

    Thanks for your suggestions!

    Jim

  • Report this Comment On March 04, 2012, at 8:05 PM, jdwelch62 wrote:

    I concur. Allow yourself 1 mulligan. Love the series. Thx...

  • Report this Comment On March 07, 2012, at 3:11 PM, pryan37bb wrote:

    For what it's worth, I think it's a good idea to hold onto FTR for now; at least, that's what I'm doing. My rationale is that people have been pricing in a dividend cut for so long. Remember how the stock actually popped the day after they announced the cut? Now it's much more sustainable, they'll have more cash to pay down debt, and the dividend is still pretty sizable. I don't have a huge position in it, but it's at least still in the green (cost basis about $4.34) for the time being.

    And if I may offer some considerations for investing in new stocks when the time comes, you might think about some monthly income options, such as Realty Income, some fixed-income funds like PFF or JNK, or maybe closed-end funds? Unless you're looking strictly for dividends, not distributions or interest, etc. It dampens volatility a bit further if the payments come in monthly instead of quarterly, and the compounding is accelerated a bit more as well. Just my two cents. Love the articles, Jim.

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