This High-Yield Portfolio Will Beat the Market

Thirty-three weeks ago, I invested my cold hard cash into 10 high-yield dividend stocks I believe will beat the market. Let's see the results so far:

Company

Average Cost

Shares

Recent Price

Total Value

Return

Altria (NYSE: MO  )

$24.86

40

$26.54

$1,061.60

6.76%

Philip Morris International (NYSE: PM  )

$61.83

16

$62.80

$1,004.80

1.57%

National Grid (NYSE: NGG  )

$45.63

22

$48.86

$1,074.92

7.08%

Annaly Capital Management (NYSE: NLY  )

$17.55

57

$15.79

$900.03

(10.03%)

Frontier Communications (NYSE: FTR  )

$8.95

137

$5.63

$771.31

(37.09%)

Southern Co. (NYSE: SO  )

$37.87

26

$41.81

$1,087.06

10.40%

France Telecom

$22.23

45

$16.26

$731.70

(26.86%)

Vodafone Group

$28.69

38

$26.00

$988.00

(9.38%)

Eli Lilly

$34.48

29

$36.73

$1,065.17

6.53%

Bristol-Myers Squibb

$25.37

39

$32.09

$1,251.51

26.49%

Cash

 

87.13

 

$87.13

 

Dividends Receivable

 

62.92

 

$62.92

 

Total Portfolio

     

$10,086.15

0.86%

Investment In SPY

       

(13.54%)

Return vs SPY (percentage points)

       

14.41

Source: Capital IQ, a division of Standard & Poor's, as of Oct. 4.

Since my last report, the SPDR S&P 500 (NYSE: SPY  ) fell 3.4%. As the market fell, our portfolio outperformance rose, moving from beating the market by 12.49 percentage points to a 14.41 point advantage. While outperformance is always good, it should be taken with a grain of salt. We're investing for the long term, and it's only been eight months. I firmly believe the results will bear us out.

Movers and shakers
Of our stocks, the biggest mover in the portfolio the past week was again Frontier Communications, which fell 12%. As I said last week, the market is worried about Frontier's large debt load, but that ignores the fact that large quantities of debt are not due until January 2013, and even those amounts are manageable. The firm's game-changing integration of Verizon's rural assets is going ahead of schedule, and I continue to believe the stock is undervalued.

Money!
There are four upcoming dividends for the portfolio:

  • Altria will pay a dividend of $0.41 per share on Oct. 11. The ex-dividend date was Sept. 13.
  • Philip Morris International will pay a dividend of $0.77 per share on Oct. 11. The ex-dividend date was Sept. 23.
  • Annaly Capital Management will pay a dividend of $0.60 per share on Oct. 27. The ex-dividend date was Sept. 28.
  • Bristol-Myers Squibb will pay a dividend of $0.33 per share on Nov. 1. The ex-dividend date is Oct. 6.

Commentary
Our cash level has built up to the point where I'd like to reinvest our cash. As I've said before, I believe Frontier is very undervalued below $6. As such, I plan on reinvesting our cash tomorrow in 12 more shares of Frontier. Ordinarily, you would be right to be worried about overallocating to Frontier. However, the current risk/reward ratio is too good to pass up.

With more cash coming in, at the end of the month I plan on reinvesting in my other favorite from a risk/return perspective, Philip Morris. At today's price, we can buy a share at the same level it traded at when we first invested eight months ago, but the difference now is that the per-share dividend has risen from $0.64 to $0.77 per quarter. Philip Morris is one of the strongest companies in the world, earning the monikers "disaster-proof" and "unbeatable" from me. It is the stock I'd like to anchor the portfolio, and as such, I'll be buying a share at the end of the month once our cash is replenished.

My Foolish bottom line
I'm highly confident in this portfolio's ability to crush the market over the next decade, and that's why I put $10,000 of my personal cash into these stocks. My strategy is simple. I'm buying strong companies with outsized dividends, reinvesting those dividends, and holding them for the long run. Over the coming year, I'll track my performance, update you on when I'm going to reinvest all my dividends, and keep you abreast of news affecting these companies.

Consider the ten tickers above along with the 13 names from a free report from Motley Fool's expert analysts called 13 High-Yielding Stocks to Buy Today, including one named by a senior retail analyst as "the dividend play of a lifetime." Tens of thousands have requested access to this report, and today I invite you to download it at no cost to you. To get instant access to the names of these 13 high yielders, simply click here -- it's free.

Dan Dzombak can be found on his Twitter account: @DanDzombak. He owns shares of Altria, Philip Morris, National Grid, Annaly Capital, Frontier, Southern Co., France Telecom, Vodafone, Eli Lilly, and Bristol-Myers Squibb.

The Motley Fool owns shares of Altria Group, Chimera Investment, Philip Morris International, and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Southern, France Telecom, Philip Morris International, Vodafone Group, and National Grid. 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 (4) | Recommend This Article (12)

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 October 05, 2011, at 7:26 PM, sheldonross wrote:

    I like seeing an actual illustration of how dividend payers weather downturns.

    Hopefully, at some point in the future (sigh, who knows how far) we'll get to see how this portfolio does compared to a market upswing.

  • Report this Comment On October 06, 2011, at 10:24 AM, pugwee wrote:

    Frontier is getting a lot of bad reports and most are indicating that Frontier can't keep paying this high div.

    What factors did Dan use to choose FTR as a fairly safe div payer?

  • Report this Comment On October 07, 2011, at 4:38 PM, Eerkes wrote:

    Is the threat for FTR coming from its ability to roll over debt as it comes due perhaps? I am incredibly bullish on their prospects. Also, Dan tag this article under "Dividends and Income" I am getting sick of having to hunt it down. Punk.

  • Report this Comment On October 07, 2011, at 4:40 PM, Eerkes wrote:

    Hey, look at that you mentioned debt rollovers in your article.

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