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

4.6%

$1,066.98

7.1%

Exelon (NYSE: EXC  )

$41.36

28.818

7.2%

$846.38

(29%)

National Grid (NYSE: NGG  )

$48.90

20.3693

5.7%

$1,114.61

11.9%

Philip Morris International

$68.49

14.5429

4.1%

$1,221.17

22.6%

Annaly Capital (NYSE: NLY  )

$17.79

72.5

14.2%

$1,030.95

(20.1%)

Frontier Communications (Nasdaq: FTR  )

$7.88

126.4243

9.2%

$549.95

(44.8%)

Plum Creek Timber

$38.42

26

4.1%

$1,062.10

6.3%

Brookfield Infrastructure Partners

$26.12

38.2825

4.5%

$1,261.41

26.1%

Vodafone (Nasdaq: VOD  )

$26.52

37.5566

5.9%

$946.05

(5%)

Seaspan

$15.14

89

6.5%

$1,338.56

(0.7%)

AT&T

$35.20

28.4

5.2%

$949.13

(5.1%)

Retail Opportunity Investments

$12.20

81.95

4.6%

$1,003.89

0.4%

Annaly Preferred C

$25.98

38.5

7.7%

$957.50

(4.3%)

Cash

     

$60.34

 

Dividends Receivable

     

$72.06

 

Original Investment

     

$12,983.97

 

Total Portfolio

     

$13,481.07

3.8%

Investment in SPY

(including dividends)

       

4.1%

Relative Performance

(percentage points)

       

(0.3)

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

Our portfolio was down significantly for the week, moving from 7.3% to 3.8%. But the S&P held up better, so we moved from a lead of 2.4 percentage points to down 0.3. That's disappointing for a portfolio that's led the S&P for much of the past year. But given the uncertainty over how the U.S. tax code will treat dividends next year, it's not too hard to fathom. Still, research has shown that dividend stocks outperform over time, so some short-term movements here are probably good for buyers. And we should continue to get a higher yield – now at 6.2% -- than the S&P while we wait for our gains.

We have $60 in cash in the portfolio now, and we should have another $72 over the next few weeks, as dividends come trickling in. We'll look to put that to work soon.

One of my favorite signals is insider buying. And that's what we saw recently at Exelon. Director Nicholas Debenedictis purchased 5,000 shares at $29.62, for a total purchase of $148,125. That's particularly encouraging in light of the company's recent warning that it might be forced to cut its dividend if conditions warrant. This news, and the steep price drop, have me thinking of Exelon as our next buy.

Vodafone reported that its joint venture with Verizon Wireless has decided to pay it a $3.8 billion dividend -- somewhat less than the $4.5 billion Vodafone received last year. Unlike last year, though, the proceeds won't go to a special dividend but, rather, to a stock buyback using about 60% of the funds. That's fine by me, if the company can buy at cheap prices; but research shows that most companies buy when the market's at a high point.

Whose dividend is better, AT&T's or Frontier's? That's the discussion a couple of Fools are having over the payouts at the two telecoms. Here's what they say.

Investors are jumping ship at Annaly, after the company reported that its interest rate spread had been cut in half in the latest quarter, down to just 1.02%, from 2.08% in the year-ago period. But might investors be too hasty? Book value per share grew to $16.60 (from $16.23 in Q2 2012), and management has said that it would buy back shares at less than book value, so that could buoy shares. Given that rate spread, it won't be surprising to see the dividend get cut in half, and that could make shares of Annaly's preferred shares -- which have declined recently -- more attractive, especially since the Series C yields 7.7% and trades below par. That would be a sustained yield without the same magnitude of downside that the common stock might offer. And it would be a better yield at today's price if the common dividend gets sliced in half.

Dividends and earnings announcements
Here is the recent news on earnings and dividends:

Earnings news:

  • Vodafone reported an unexpected loss in its latest half-year report. The company took a $9.4 billion writedown on its Spanish and Italian operations, leading to a $3.2 billion loss for the first half. The company lifted its interim dividend by 7.3%, and reiterated that it aimed to boost the full-year payout by 7% over last year. Fellow Fool Maynard Paton has more on Vodafone's results here.
  • National Grid also reported first-half results this week, with adjusted profit moving up a solid 7%. Management promised that costs from Hurricane Sandy would not exceed $160 million, and those costs would fall in the company's second half. The company raised its interim dividend 4%, and expects the full-year payout to be raised by the same amount. The forward P/E stands at a comfortable 12.5. Maynard Paton has more on this U.K. utility here.

Dividend news:

  • Southern went ex-dividend on November 1, and pays out $0.49 per share on December 6.
  • Seaspan went ex-dividend November 9, and pays out $0.25 per share on November 23.
  • Retail Opportunity Investments went ex-dividend November 9, and pays out $0.14 per share on November 30.
  • Exelon went ex-dividend November 13, and pays out $0.525 per share on December 9.
  • Plum Creek went ex-dividend November 14, and pays out $0.42 per share on November 30.

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. 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.

If you like dividends, consider the 13 tickers above, along with the nine names from a brand new, free report from Motley Fool's expert analysts called, "Secure Your Future With 9 Rock-Solid Dividend Stocks." Today, I invite you to download it at no cost to you. To get instant access to the names of these nine high-yielders, simply click here -- it's free.

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. Motley Fool newsletter services have recommended creating a write covered straddle position in Exelon. Motley Fool newsletter services have recommended creating a covered straddle position in 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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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 November 20, 2012, at 11:30 PM, NationalMatch wrote:

    Would love to see an update on this portfolio in the next 6 months. Have you considered throwing LEAPS into the mix?

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