The World's Best Dividend Portfolio

Last 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 for yourself. Now let's check out the results so far.

Company

Cost Basis

Shares

Yield

Total Value

Return

Southern $39.71 25.0818 4.2% $1,132.69 13.7%
Exelon $41.82 23.818 5.4% $1,120.73 (6%)
National Grid (NYSE: NGG  ) $48.90 20.3693 5.8% $1,027.22 3.1%
Philip Morris International (NYSE: PM  ) $68.49 14.5429 3.5% $1,301.44 30.7%
Annaly Capital (NYSE: NLY  ) $18.24 65.5 13.9% $1,030.97 (12.2%)
Frontier Communications (NYSE: FTR  ) $7.88 126.4243 9.3% $552.47 (44.5%)
Plum Creek Timber $38.42 26 4% $1,078.74 8%
Brookfield Infrastructure Partners $26.12 38.2825 4.7% $1,197.86 19.8%
Vodafone $26.52 37.5566 4.9% $1,034.68 3.9%
Seaspan $14.61 69 4.3% $1,180.59 17.1%
Cash       $80.80  
Dividends Receivable       $47.22  
Original Investment       $9,986.58  
Total Portfolio       $10,785.44 8%
Investment in SPY (Including Dividends)         10.4%
Relative Performance (Percentage Points)         (2.4)

Source: S&P Capital IQ.

While the S&P has been having some difficulty in the past week, our total portfolio performance increased, moving up 1 percentage point to 8%. We're still down on the dividend-adjusted S&P by about 2.4 percentage points, but that's a strong improvement from last week. We have seven of 10 stocks in positive territory. With all the talk over Europe, slowing Chinese growth, and a six-month rally in equities, a dividend-heavy portfolio should be one of the safer ports in a storm. So it's not so surprising that we've done better than the S&P recently.

We'll soon have more than $100 in cash in the portfolio, and I'll be adding that to one of the current holdings. As I've mentioned before, I'm also considering how to construct the portfolio for its second year. I'm thinking about adding some cash to the portfolio, to help reflect the idea that we add to our portfolios over time, and I may expand the portfolio by a few stocks. You all have given me some good ideas already. What else is on your mind?

I'm cautious on Annaly Capital now, as I've explained in previous columns. It's experienced a declining spread in recent quarters and just cut its dividend sequentially. But fellow Fool Dan Caplinger thinks the company, as a large owner of mortgage debt, could benefit if the Federal Reserve begins to buy mortgage bonds. I'm looking to see what happens in the current quarter before I decide how to proceed.

Dividends and other announcements
We're in between earnings seasons, and we have limited dividend news for the moment.

  • When I formed the portfolio, I briefly considered adding Altria (NYSE: MO  ) because of its high dividend yield. Instead, I opted for the lower-yielding Philip Morris, because of its broader diversification, faster growth, and lower susceptibility to legal restrictions. While Altria and other American tobacco companies could be required to report to the FDA on 20 different noxious chemicals in their products, Philip Morris has largely avoided such regulation. However, it's currently battling Australia's law that bans logos on cigarette packages. But its broad diversification means that, if things go south in Australia, it has plenty of other markets to fall back on. Altria can't say the same.
  • The price drop for carbon-emissions credits in the E.U. is leading to a greater use of coal rather than natural gas in Europe. At National Grid, coal fueled 46% of power generated, against 26% for natural gas. That's a higher proportion for coal than in recent quarters. Because of the slowing European economy, consumers of such credits have had less need for them, causing credit prices to fall about 65% over the past year.

Dividend news:

  • Brookfield Infrastructure went ex-dividend on Feb. 27 and paid out $0.375 per share on March 30.
  • Frontier went ex-dividend on March 9 and paid out $0.10 per share on March 30.
  • Annaly went ex-dividend on March 28 and pays out $0.55 per share on April 26.

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 that year, including news on these companies.

If you're craving more dividend payers, I invite you to read the free report from The Motley Fool titled "3 American Companies Set to Dominate the World." Today I invite you to download it at no cost to you. To get instant access to the names of these dominant dividend stocks -- it's free.

Jim Royal, Ph.D., owns shares of the 10 portfolio stocks mentioned in the table. The Motley Fool owns shares of Annaly, Seaspan, Plum Creek, and Brookfield Infrastructure and has created a covered strangle position in Plum Creek. Motley Fool newsletter services have recommended buying shares of Exelon, Philip Morris, Annaly, Southern, National Grid, Vodafone, and Brookfield Infrastructure, as well as writing a covered strangle position on Exelon and a covered straddle position on Seaspan. 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 (4) | Recommend This Article (11)

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 April 06, 2012, at 10:41 PM, BWinski wrote:

    Let's see... That's an insane amount of work for an exceptionally BAD return. IF you had taken the same amount of money, invested it ONLY in Apple stock, your investment would have yielded well over 100% over a shorter period of time, you would have done a LOT less work, and you would have had a LOT more time to have a life !!

    BAD INVESTING ADVICE.... Get another job.

  • Report this Comment On April 06, 2012, at 11:34 PM, GW1000 wrote:

    I would add Johnson & Johnson, Southern Copper Corporation, and GE. GE has started raising its dividend again and should do well long term. The financial crisis hit GE hard but they are fine now.

  • Report this Comment On April 07, 2012, at 1:49 AM, rhoop wrote:

    @BWinski: a 100% gain in AAPL if invested a year ago? No kidding. Man you're good. You must be one of those hindsight stock picking gurus. You know, where you consistantly pick high flying stocks after the fact with 100% accuracy.

    Better yet if you had invested ONLY in NF Energy just last Wednesday you would be up over 95% in JUST TWO DAYS and you would have even MORE TIME to have a life!!

    Seems you should get one yourself, along with a brain.

  • Report this Comment On April 10, 2012, at 10:55 PM, BarneyRubbel wrote:

    Good job, I just think it should be called

    "My dividend portfolio"

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