The World's Best Dividend Portfolio

In June 2011 I invested my money equally in a selection of 10 high-yield dividend stocks. With a year of success behind me, in July 2012, I added even more money to the portfolio. Those names offer triple the yield of the average S&P 500 stock. You can read all the details here. Now let's check out the results so far.

Company

Cost Basis

Shares

Yield

Total Value

Return

Southern $39.71 25.0818 4.3% $1,155.52 16%
Exelon (NYSE: EXC  ) $41.36 23.818 5.9% $1,043.21 (12.5%)
National Grid $48.90 20.3693 5.4% $1,134.37 13.9%
Philip Morris International $68.49 14.5429 3.5% $1,301.30 30.6%
Annaly Capital (NYSE: NLY  ) $17.79 72.5 12.5% $1,278.18 (0.9%)
Frontier Communications (NYSE: FTR  ) $7.88 126.4243 8.8% $587.24 (41.1%)
Plum Creek Timber $38.42 26 4.1% $1,071.72 7.3%
Brookfield Infrastructure Partners $26.12 38.2825 4.4% $1,331.08 33.1%
Vodafone (Nasdaq: VOD  ) $26.52 37.5566 5% $1,070.55 7.5%
Seaspan (NYSE: SSW  ) $14.90 76 6% $1,356.28 9.9%
AT&T $35.20 28.4 4.8% $1,063.30 6.4%
Retail Opportunity Investments $12.20 81.95 4.4% $1,031.75 3.2%
Annaly Preferred C $25.92 38.5 7.5% $981.37 (1.9%)
Cash       $52.11  
Dividends Receivable       $60.59  
Original Investment       $12,983.97  
Total Portfolio       $14,518.56 11.8%
Investment in SPY (including dividends)         12.6%
Relative Performance (percentage points)         (0.8)

Source: S&P Capital IQ.

Our portfolio was up nicely for the week, moving from 10.8% to 11.8% this week. But we lost significant ground on the S&P (most of it on Thursday's big rally), moving from 0.8 points up to 0.8 down. Our blended yield remains at 5.8% and we have quite a few dividends in the next couple weeks. As I've been saying all along, we will underperform when the S&P races up, but outperform when the S&P goes down. I'm confident in the long-run nature of this dividend portfolio, though.

In fact, in about a month we'll have another $100, which I'd like to put to work immediately. Which do you think is the best of these dividend-payers?

Two of our highest-yielding stocks look most attractive: Exelon and Seaspan. Both offer similar yields, but the prospects and likely performance for each will be far different. With a purchase of Exelon, I expect slow dividend growth over time but very low price volatility. Its recent price decline makes the stock more attractive. Fellow Fool Sean Williams runs down the numbers on Exelon here.

On the other hand, with Seaspan, I expect rapid dividend growth that should rapidly propel the stock upward. But a slowing global economy could really hurt this shipping stock in the short term, potentially providing me with a better entry point.

The hidden dividend in this portfolio, though, is Vodafone. Its dividend is listed at 5% above and on many financial sites, but that doesn't include the special dividend (an extra couple percent) that we saw earlier this year and that we should see again early next year. In reality, this stock is yielding over 7% and has broad global diversification.

Annaly is out in the market raising more money, though it's also paying some off debt, too. The company is issuing $400 million in a new D series preferred stock paying 7.5%. In May, it issued $275 million of its 7.625% Series C preferreds, which we own in the portfolio. Annaly also announced that it had repurchased nearly $281 million (of $600 million outstanding) of its 4% convertible notes due in 2015. The preferreds provide Annaly more flexibility and reduce its cost of capital.

Dividends and other announcements
We're mostly through earnings season, and have lots of dividend news for the moment.

Dividend news:

  • Southern went ex-dividend on Aug. 2 and paid out $0.49 per share on Sept. 5.
  • Frontier went ex-dividend on Sept. 5 and pays out $0.10 per share on Sept. 28.
  • Exelon went ex-dividend on Aug. 13 and pays out $0.525 per share on Sept. 10 .
  • Annaly Preferred C went ex-dividend on Aug. 31 and pays $0.47 per share on Oct. 1.
  • Brookfield Infrastructure went ex-dividend on Aug. 29 and pays $0.375 per share on Sept. 27.

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 likely have stocks plunging again, and 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 continue to track and report on the portfolio's progress, including news on these companies.

Annaly's an intriguing proposition, but it isn't risk-free. Find out what Fool analysts believe in this premium report on Annaly that comes with exclusive access to real-time updates throughout the year. Get your copy today.

Jim Royal, Ph.D., owns shares of the 13 portfolio stocks mentioned in the table. The Motley Fool owns shares of Seaspan, Brookfield Infrastructure, ROIC, and Annaly. Motley Fool newsletter services have recommended buying shares of Vodafone, ROIC, National Grid, Brookfield Infrastructure, Exelon, Annaly, and Southern, as well as writing covered straddle positions on Exelon and Seaspan. 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.


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