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, and then more again in 2013. 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

Exelon

$41.36

28.818

4.4%

$819.58

(31.2%)

National Grid

$48.90

20.3693

5.5%

$1,251.90

25.7%

Philip Morris International (NYSE: PM  )

$78.05

25.5429

4.4%

$2,192.35

10%

Ryman Hospitality

$40.96

39.3

4.8%

$1,641.17

2%

Plum Creek Timber

$38.42

26

3.9%

$1,164.28

16.6%

Brookfield Infrastructure Partners

$26.12

38.2825

4.6%

$1,440.57

44.1%

Vodafone (NASDAQ: VOD  )

$27.26

74

4.5%

$2,791.28

38.4%

Seaspan (NYSE: SSW  )

$15.24

95

5.8%

$2,041.55

41%

Retail Opportunity Investments

$12.20

81.95

4%

$1,214.50

21.5%

Annaly Preferred D (NYSE: NLY  )

$25.50

38.9

8.5%

$859.69

(13.3%)

Gramercy Property Trust

$4.48

223

0%

$1,179.67

18.1%

Sprott Resource Corp. (NASDAQOTH: SCPZF  )

$3.51

285

0%

$641.25

(35.9%)

Cash

     

$898.01

 

Dividends Receivable

     

$97.51

 

Original Investment

     

$14,983.36

 

Total portfolio return

     

$18,233.31

21.7%

Return of SPDR S&P 500 ETF (with dividends reinvested)

       

35%

Relative performance (percentage points)

       

(13.3)

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

The total portfolio is now up 21.7%. We lag the index by 13.3 percentage points. The blended yield fell to 4.6%, partially because Sprott Resource cut its dividend a few months back.

That cut really hurt Sprott's stock, but it's not the only reason the portfolio is behind the market. We expect to underperform the market in flush times and outperform when the market goes lower. The stock market has made nearly continuous gains throughout 2013. But I've continued to hoard dividends, and I'll tell you where I'm going to deploy them below.

We finally got the special situation I had envisioned when I purchased shares of Vodafone. The telecom decided to sell its 45% stake in Verizon Wireless to Verizon, and now I think it's time to go. I made a nice bundle on call options in my Special Situations portfolio -- up nearly 300% in seven months -- but this is a dividend portfolio, so I stuck with the common stock here. We're still up a solid 38% (not including substantial dividends), so I don't feel too bad. But when the new year starts, I'll be selling the stock and reinvesting those proceeds.

Because it cut its dividend, I'll be selling Sprott as well, but I'll do it this year to take advantage of tax losses. It's unfortunate that we have to sell, because the company is clearly and substantially undervalued, but this is a dividend portfolio, and unless there's a clear prospect of a dividend in the near future (as is the case with Gramercy), I think we should sell. So I'll do that as soon as the Fool's Rules permit.

Annaly Series D offers a nice yield now, but I'm a bit puzzled by its recent decline. In the most recent quarter Annaly spent about four times more on its common dividend than it does on its preferred dividends. Before the dividends on its preferreds are cut, Annaly would have to blow through its entire common dividend before the preferred dividend is touched. Now, that's not entirely out of the realm of possibility, but I don't think it's so likely, either. It's more likely rising rates leading investors to demand more return for their risk.

With the cash on hand now, I'm reinvesting in Seaspan. I expect the company to boost its dividend at the end of the fiscal year, and I think it offers dividend investors an attractive dividend and substantial potential for growth. It remains perhaps my favorite dividend stock in the portfolio. So as soon as the Fool's Rules permit, I'll be using my remaining cash balance to buy more.

But with the sale of Vodafone, I'll have more cash in my pocket. Which stock in the portfolio looks most attractive? Here are the two that I like the best.

Philip Morris has moved very little in the last year or so. While increasing regulation and dour foreign economies have hit the company, it continues to raise its dividend, which now sits at a nice 4.4%. The company continues to buy back stock -- one of my favorite management practices, if done right -- to the tune of $1.5 billion or so over the last few quarters. And I expect the dividend increases to continue. So it's definitely on my short list of reinvestment candidates.

My other major buy candidate is Ryman Hospitality. It trades well below peers and offers a much better dividend. The CEO owns nearly 2% of shares and thinks like an owner. Plus, as I noted when I originally bought the stock, he's publicly committed to buying back stock until the company trades in line with peers. I think the stock could be worth $60 now.

Dividends and earnings announcements
Dividend news:

  • Vodafone went ex-dividend on Nov. 20 and pays out $0.562 per share on Feb. 5.
  • Exelon went ex-dividend on Nov. 15 and pays out $0.31 per share on Dec. 10.
  • Brookfield Infrastructure went ex-dividend on Nov. 26 and pays out $0.43 per share on Dec. 31.
  • Retail Opportunity Investments goes ex-dividend on Dec. 16 and pays out $0.15 per share on Dec. 30.
  • Annaly Series D went ex-dividend on Nov. 27 and pays out about $0.47 per share on Dec. 31.

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 up more shares.

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 nine names from a 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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Read/Post Comments (3) | Recommend This Article (14)

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 December 10, 2013, at 6:54 PM, cowboy1up wrote:

    Hi,

    I'm not clear if you reinvested dividends back to the original stock or if you set them aside to invest later in another opportunity?

  • Report this Comment On December 10, 2013, at 6:58 PM, cowboy1up wrote:

    Sorry, I'm not clear if you reinvested dividends back to the paying stock, or if you set aside dividends to invest in other opportunities at a later time?

  • Report this Comment On December 15, 2013, at 3:11 AM, RetiredInvesta wrote:

    Thanks for keeping us up to date - your portfolio has performed very well - congratulations. The title is somewhat misleading, since the portfolio is far from the best in the world. The VOD stock will likely pay a 48% special dividend in early March, so selling it now is somewhat questionable. A world class dividend portfolio should earn at least 7% in dividends annually and the stock prices should increase at least 14% per year. That means that $15,000 should be worth $23,300 after 2.5 years, including dividends.

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