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%

$1,138.46

14.3%

Exelon

$41.36

28.818

6.6%

$916.99

(23.1%)

National Grid

$48.90

20.3693

5.7%

$1,123.98

12.8%

Philip Morris International

$68.49

14.5429

3.7%

$1,335.18

34%

Annaly Capital (NYSE: NLY  )

$17.79

72.5

13.4%

$1,109.98

(13.9%)

Frontier Communications (NASDAQ: FTR  )

$7.88

126.4243

9.9%

$517.08

(48.1%)

Plum Creek Timber

$38.42

26

3.4%

$1,274.52

27.6%

Brookfield Infrastructure Partners

$26.12

38.2825

4.4%

$1,491.87

49.2%

Vodafone (NASDAQ: VOD  )

$26.52

37.5566

6%

$1,012.90

1.7%

Seaspan (NYSE: SSW  )

$15.24

95

0.8%

$1,900.00

31.3%

AT&T

$35.20

28.4

5%

$1,033.48

3.4%

Retail Opportunity Investments

$12.20

81.95

4.5%

$1,071.09

7.1%

Annaly Preferred C

$25.98

38.5

7.5%

$980.60

(1.7%)

Cash

     

$234.66

 

Dividends Receivable

     

$47.45

 

Original Investment

     

$12,983.97

 

Total Portfolio

     

$15,188.22

17%

Investment in SPY (Including Dividends)

       

18.7%

Relative Performance (Percentage Points)

       

(1.7)

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

The portfolio is up 17%, since we began this experiment, and we're trailing the S&P by 1.7 percentage points. That might not be surprising given the massive run the market's been on over the past few months. Remember, we expect to outperform in down markets and underperform in up markets. We have a load of new cash in our pocket, which we could deploy soon, and several other significant portfolio changes to make.

I'm selling my stake in Frontier. The company continues to see shrinking free cash flow -- now projected at $875 million (midpoint) for 2013. While that solidly covers the dividend, free cash flow just continues to shrink. I'll be rolling over those proceeds into Vodafone. The rumors continue to swirl that Verizon wants Vodafone's 45% stake in their joint venture, Verizon Wireless. Estimates I've seen of the value of that stake equal nearly all of Vodafone's market cap today. And with a means to effect a tax-free transaction, that value could be realized this year. Meanwhile, Vodafone offers a smaller, though by no means small, dividend that is much more likely to stick around longer term.

Second, I'm selling my stake in Annaly and moving the funds to Ryman Hospitality Properties (NYSE: RHP  ) . You can read the lowdown on Ryman here, but the short story is that the company just converted to a REIT a couple of months ago and is now paying a 4.5% yield. There are other significant catalysts that could drive the stock higher besides. Make sure to check out the article.

Finally, I'm switching my stake in Annaly Series C to Annaly Series D as long as the price disparity of about $0.40 holds. With preferred stock, I like to shift around from series to series in the same company if one comparable security gets out of line relative to the other. And that $0.40 is equal to nearly a whole quarter's dividends as well. In Annaly's recent quarter, book value slipped from $16.60 to $15.85 -- a 4.5% decline -- and the stock now trades at 0.97 times book. So I'm not inclined to wait around on the common stock any longer, but I do remain interested in the preferreds, which would have to see a complete erosion in the common's dividend before losing their payouts.

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

Earnings news:

  • Seaspan performed as expected this quarter, growing cash available for distribution. It's continuing to expand its fleet size and bumped its dividend up by 25%, to a yield of $1.25. I expect the stock to trade around $20 for the near future. If it declines much below that, I'll be inclined to pick up more.

Dividend news: 

  • Frontier went ex-dividend on March 6 and pays out $0.10 per share on March 28.
  • Brookfield Infrastructure went ex-dividend on Feb. 26 and pays out $0.43 per share on March 29.
  • Annaly Series C went ex-dividend on Feb. 27 and pays out almost $0.48 per share on April 1.

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 continue to track and report on the portfolio's progress, including news on these companies.

If you like dividends, consider these 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.


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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 09, 2013, at 12:02 PM, valueinvesting12 wrote:

    Are you subtracting commission costs from the buying and selling of shares? Any comparison with the S&P 500 should probably take that into account, right?

    For example, if you were using TDAmeritrade, you'd be paying $9.99 per trade. So with the switching out of two securities and into two others, you're looking at $39.96 in commissions, which wipes out 84% of your dividends receivable.

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