The World's Best Dividend Portfolio

In June I invested my money equally in a selection of 10 high-yield dividend stocks. 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% $1,110.62 11.5%
Exelon $41.82 23.818 5.3% $944.15 (5.2%)
National Grid $48.90 20.3693 5.8% $1,011.54 1.6%
Philip Morris International $68.49 14.5429 4.1% $1,102.93 10.7%
Annaly Capital $18.24 65.5 13.5% $1,113.50 (5.1%)
Frontier Communications $7.88 126.4243 17.7% $551.21 (44.7%)
Plum Creek Timber $38.42 26 4.3% $1,015.04 1.6%
Brookfield Infrastructure Partners $26.12 38.2825 4.8% $1,094.88 9.5%
Vodafone $26.52 37.5566 4.9% $1,022.67 2.7%
Seaspan $14.61 69 4.9% $1,069.50 6.1%
Cash       $201.34  
Dividends Receivable       $0.00  
Total Portfolio       $10,237.38 0.8%

Investment in SPY

(including dividends)

        4.3%

Relative Performance

(percentage points)

        (3.5)

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

Our total portfolio performance declined overall from the previous week, moving from 1.8% to 0.8% this week.  So we even lost some on the S&P, as it moved head, leaving our portfolio underperforming by 3.5 percentage points. We have four stocks outperforming the index. But I'm confident in the long-run nature of this portfolio, and I fully expect it to outperform. If we see a downward move in the S&P, we'll quickly gain the upper hand again, I think.

Given the massive move down in shares of Frontier (NYSE: FTR  ) over the last few months, I'm strongly considering reinvesting the money there.  I'll dig in there and see if I can find some opportunity.  We've got a solid $200 in cash now in the account, and February will see even more pour in, so if there's something attractive, I'm all for buying it now.

Frontier's recent big down day came on reports that it had been downgraded by S&P from stable to negative, but the rating agency maintained the rating on Frontier's bonds. Without its truly horrific performance -- down nearly 50% since late June -- the portfolio would be clearly better than the market (in other words, about 4.5% better than now).

Annaly (NYSE: NLY  ) investors have reason to cheer, as the Federal Reserve promised to keep rates low through 2014. That should keep the cost of funds low for mortgage REITs such as Annaly, and overall it benefits many capital-intensive companies in our portfolio, especially utilities Exelon (NYSE: EXC  ) and National Grid (NYSE: NGG  ) and hard-asset play Brookfield Infrastructure (NYSE: BIP  ) .  But for mortgage REITs like Annaly, many investors are worried that mortgage rates keep trending downward, setting new record lows week after week, it seems.  And that potentially exposes Annaly to prepayment risk and lower spreads.

Dividends and other announcements
We had one company reporting this week, and we'll have a bunch of companies going ex-dividend in the next couple of weeks:

  • Exelon had a nuclear reactor in Illinois shut down unexpectedly earlier this week. Apparently the shutdown was due to a failed insulator, which helps regulate electricity flow. Separately, the Nuclear Regulatory Commission mandated that nuclear plants in the central and eastern U.S. must reassess how well they can withstand earthquakes. Exelon said the reviews at its plants would take three to five years to complete, but noted that its plants were designed to withstand earthquakes up to 6.9 on the Richter Scale.
  • National Grid came out with its interim performance. Of particular note for us dividend investors, the company promised a 4% dividend raise for next year. That's not as good as in recent years, but better than nothing, especially in this economic climate. The company's August 2012 dividend will still show the promised 8% annual growth.
  • Plum Creek also reported earnings this week, with net income flat year over year. Weak timber prices in the South offset firmer pricing in the North, and the company's forecast for 2012 earnings -- $1 to $1.25 per share -- came in below analysts' estimates of $1.35.

Dividend news:

  • Vodafone paid out a dividend of about $1.12 per U.S. share on Feb. 3. We waited a long time for this one.
  • Annaly went ex-dividend on Dec. 27 and paid out $0.57 per share on Jan. 25.

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 be holding these stocks for at least a year and will continue to track the portfolio over the course of the year, including news on these companies.

If you like dividends, consider the 10 tickers above along with the 11 names from a brand new free report from Motley Fool's expert analysts called "Secure Your Future With 11 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 11 high yielders, simply click here -- it's free.

Jim Royal, Ph.D., owns shares of the 10 portfolio stocks mentioned in the table. The Motley Fool owns shares of Seaspan, Brookfield Infrastructure, Annaly, Plum Creek, and Philip Morris. The Fool owns shares of and has created a covered strangle position on Plum Creek. Motley Fool newsletter services have recommended buying shares of Exelon, National Grid, Philip Morris, Vodafone, Southern, and Brookfield Infrastructure, as well as writing a covered straddle position in Seaspan and a covered strangle position in Exelon. 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 (13)

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 February 03, 2012, at 7:10 PM, golferboy101 wrote:

    MO, SO, HCN, T, VZ; all are solid, all are paying and mostly all are increasing the dividend. Patience is a virtue, with a financial upside. Maybe I'll take some of the dividends of T and VZ (since they're closely related on dividends) and head for NLY?

  • Report this Comment On February 03, 2012, at 10:25 PM, pugwee wrote:

    I have been thinking about going a little further in with FTR, but I'm getting a little nervous by the recent drop.

    Is there something that I missed?

    It seems to me that FTR is going along with the conversion on schedule without any suprises so why the sudden drop?

  • Report this Comment On February 04, 2012, at 12:59 AM, Sabiondo wrote:

    If this is a real portfolio (real money invested as you indicate), I wonder how you can purchase fractional shares. When securities in my portfolio have a reverse split, I always get cash in lieu of fractional shares. Can you explain how you are able to obtain fractional shares?

  • Report this Comment On February 04, 2012, at 12:10 PM, sikiliza wrote:

    I would take AGNC over NLY. Investing in Agency-backed MBS and yielding 19%, solid management and a stock price that's been crawling upward in the last month or so.

  • Report this Comment On February 05, 2012, at 4:08 PM, 1caflash wrote:

    Many brokerages have access to a market which allows them to Sell fractional shares. This happened to me when I sold Full Positions in stocks that were either in my DRIP or I was eligible for the dividends which became part of my account weeks later, and I wanted those small amounts converted to Cash. Jim Royal knows that a Long-Term Investor need not worry about "fractional shares", because the Object is to have those shares Reinvested, usually in the same Company's Stock; then You Maximize Your Returns over the Years by Compounding. There is no way I know to Purchase Fractional Shares if You are a Small Individual Investor.

  • Report this Comment On February 05, 2012, at 7:58 PM, Edeskimo wrote:

    Some may prefer AGNC with the better stock performance and the higher yield over the last year.

    However, the benefity with NLY is the management team has been around longer and have proven they can be consistently profitable even as interest rates begin to rise. That is worth quite a bit in and of itself in a volatile market where things have been changing rapidly.

    The other aspect is that AGNC is more highly levered than NLY and NLY has actually been decreasing leverage to better manage risk.

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