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

4.2%

$1,215.71

22.1%

Exelon

$41.36

28.818

3.6%

$1,056.76

(11.3%)

National Grid

$48.90

20.3693

5.7%

$1,230.51

23.5%

Philip Morris International (NYSE: PM  )

$68.49

14.5429

3.7%

$1,349.87

35.5%

Ryman Hospitality

$44.93

24.7

4.7%

$1,063.58

(4.2%)

Plum Creek Timber

$38.42

26

3.2%

$1,365.26

36.7%

Brookfield Infrastructure Partners

$26.12

38.2825

4.6%

$1,439.04

43.9%

Vodafone (NASDAQ: VOD  )

$26.75

56.7566

5.3%

$1,687.94

11.2%

Seaspan

$15.24

95

6.5%

$1,925.65

33%

AT&T (NYSE: T  )

$35.20

28.4

4.7%

$1,099.93

10%

Retail Opportunity Investments

$12.20

81.95

4.2%

$1,165.33

16.6%

Annaly Preferred D

$25.98

38.9

7.4%

$992.34

0%

Cash

     

$317.59

 

Dividends Receivable

     

$12.78

 

Original Investment

     

$12,983.97

 

Total Portfolio

     

$15,922.30

22.6%

Investment in SPY

(including dividends)

       

19.8%

Relative Performance

(percentage points)

       

2.8

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

The portfolio continued to perform strongly, though on relative terms. While it was down 0.6 percentage points since the last article, to 22.6% gains, the outperformance on the S&P grew, from 1.1 points to 2.8. That's strong performance for a week, but it suggests that investors are moving to "safe" dividend-paying assets. That flight to safety may ultimately presage a market move lower, but we'll see. In any case, it suggests that investors are getting more cautious and shun riskier assets. But as I've said all along, I expect we'll outperform in down markets, and we continue to see that.

The blended yield is 4.9%, and we have more than $300 in cash in the portfolio, with more on the way in the next 10 days. I've been holding more cash than I normally would expecting a market downturn after the runaway start to the markets this year.

We're coming up on the two-year anniversary of the portfolio in June, and I'm planning to add more money and perhaps more positions. In addition, I may shake things up a little bit and sell some stocks from the portfolio. Have any good dividend stocks to buy or ones from the portfolio to sell? Let me know in the comment box below.

I continue to follow the rumors around Vodafone with quite a bit of interest. I think the deal will happen sooner rather than later because Verizon (NYSE: VZ  ) needs the cash flow from Verizon Wireless, its joint venture with Vodafone. In the last four quarters, Wireless net income comprised 90% of Verizon's bottom line, and you'll recall that Verizon doesn't get that Wireless cash unless it makes dividends to itself -- and Vodafone. At the very least, I expect to see the Wireless dividend spigot turned on regularly, and that means a lot more cash coming Vodafone's way--  cash that could be used for buybacks and more dividends.

But things still look ripe for a buyout of at least Vodafone's 45% interest in Wireless. As Verizon's CFO revealed on a conference call, the company is "extremely confident that such a transaction could be accomplished in a manner that is very tax efficient and would not result in a tax on the gain in that stake." That would mean little or no tax leakage for Vodafone. So while it's researching ways to make a tax-efficient deal, Verizon is not "currently" making a deal for Vodafone in whole or in part. Ri-i-i-i-ght.

The most recently rumored deal had Verizon acquiring Vodafone's stake in Wireless and AT&T taking control of the U.K. telecom's far-flung empire of assets. The rumored deal price valued Vodafone shares near $40 – a sizable gain for an already-megacap stock. I think a deal will happen and I have real money riding on just such an outcome.

I continue to be surprised by the discount that Annaly  (NYSE: NLY  )  Series D shares have, relative to the Series C, and they have much the same payouts, though Series D has a bit longer until its call date. The discount is pretty consistently $0.30 per share and sometimes as high as $0.50. As I mentioned last week, I switched out the Series C for Series D, and if the pattern reverses, I'll switch back to the C series. While the preferreds offer little or no chance for capital gains, they do have a solid yield and one that won't slide, unlike payouts from the common stock.

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

Earnings news:

  • Philip Morris reports earnings that trailed analysts' estimates, with net income falling nearly 2%, to $2.13 billion, or $1.28 per share. Analysts expected $1.34 per share. The company was hurt by shipments that were off 6.5% globally, including a 10% plunge in the EU. The stronger dollar has also hurt results. Philip Morris lowered its annual profit estimates to $5.55-$5.65 per share. Annualizing its current quarterly dividend of$0.85 per share suggests that it is paying out about 61% of net income -- a reasonable figure for a stable company. Fellow Fool Sean Williams has more in this article.

Dividend news:

  • AT&T went ex-dividend on April 8 and pays out $0.45 per share on May 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 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.

If you like dividends, consider the 12 tickers above along with the 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 high yielders, simply click here -- it's free.

Jim Royal, Ph.D., owns shares of the 12 portfolio stocks mentioned in the table. The Motley Fool recommends Brookfield Infrastructure, Exelon, National Grid, Retail Opportunity Investments, Seaspan, Southern, and Vodafone. It owns shares of Brookfield Infrastructure, Philip Morris, Retail Opportunity Investments, Ryman Hospitality, 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.


Read/Post Comments (6) | Recommend This Article (9)

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 23, 2013, at 7:54 PM, tomami wrote:

    Thanks Jim for sharing your portfolio. I bought PM a little lower than you did but I sold it when it got into the mid 90s. I like tobacco stocks and I now own MO and thinking about LO. I also own SO, BIP, and T. Some of my favorite high-yielding stocks are AGNC, MAIN, CLMT, SDRL, & TCAP. I own 6 REITs, 9 Closed End Funds (CEFs), and 7 Business Development Companies (BDCs), I own at present 7 Dow stocks and other S&P stocks. Currently I have only 4 stocks that do not pay any dividends (AVAV, HAIN, STZ, and SLV). I have had those a long time. I am shifting my portfolio to dividend stocks and trying to avoid any stocks that would be classified as spectative. But I will purchase positions in stocks I believe have fallen out of grace but which I believe will turn it around. I am willing to give these companies a two year grace period. For example I purchased INTC, PBI, DD, F, MCY, WM, & YHOO with this in mind.

  • Report this Comment On April 23, 2013, at 10:04 PM, DCDiver wrote:

    Consider PBI and/or ABBV

  • Report this Comment On April 24, 2013, at 10:23 AM, TMFRoyal wrote:

    Hi, Tomami,

    Thanks for the ideas.

    I'm also looking at one company that isn't paying dividends yet, but should offer a high yield in the near future. I'll let you know what I decide in this spot.

    Jim

  • Report this Comment On April 24, 2013, at 10:28 AM, TMFRoyal wrote:

    Hi, DCDiver,

    The dividend at PBI scares me, though ABBV could be quite interesting. I'll need to look into it.

    Jim

  • Report this Comment On April 24, 2013, at 10:10 PM, msevier31 wrote:

    Jim,

    I've enjoyed following this series since you began, so thank you for the updates. If you've answered this before, I apologize, but have you considered something like COP, CVX, or any of the energy MLPs (KMP/KMI, MMP, GEL, SXL, etc) for your portfolio? I think many/most of them would meet your requirements; I understand wanting to avoid the K1s from the MLPs, but I can't think of any other reason to avoid the energy sector. Thanks!

  • Report this Comment On May 02, 2013, at 7:44 PM, TMFRoyal wrote:

    Thanks, msevier31. Yeah, I've liked the MLPs before, but the K-1s are a bear. But yeah, I think you're right: from a strategic standpoint and distribution-wise, MLP can be a great option for investors.

    I've got one or two things in the offing for the annual re-boot.

    Thanks for reading!

    Jim

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