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.

The portfolio

Company

Cost Basis

Shares

Yield

Total Value

Return

Southern

$39.71

25.0818

4.2%

$1,173.83

17.9%

Exelon

$41.36

28.818

5.7%

$1,080.10

(9.4%)

National Grid

$48.90

20.3693

5.4%

$1,154.53

15.9%

Philip Morris International (NYSE: PM  )

$68.49

14.5429

3.7%

$1,279.78

28.5%

Annaly Capital (NYSE: NLY  )

$17.79

72.5

12.5%

$1,167.25

(9.5%)

Frontier Communications

$7.88

126.4243

8.3%

$616.95

(38.1%)

Plum Creek Timber

$38.42

26

3.8%

$1,157.26

15.9%

Brookfield Infrastructure Partners

$26.12

38.2825

4.3%

$1,318.83

31.9%

Vodafone

$26.52

37.5566

5.4%

$1,065.86

7%

Seaspan

$15.14

89

6.1%

$1,452.48

7.8%

AT&T (NYSE: T  )

$35.20

28.4

4.9%

$1,022.97

2.3%

Retail Opportunity Investments

$12.20

81.95

4.4%

$1,060.43

6.1%

Annaly Preferred C

$25.98

38.5

7.4%

$995.23

(0.5%)

Source: S&P Capital IQ.

The results

Cash

$11.59

Dividends Receivable

$48.75

Original Investment

$12,983.97

Total Portfolio

$14,605.83

Portfolio Return

12.5%

SPDR S&P 500 Return (including dividends)

 11.9%

Relative Performance (percentage points)

 0.6

Our portfolio was up for the week, moving from 11.6% to 12.5%. But the S&P moved up even more, decreasing our lead from 1.6 percentage points to 0.6. Our blended yield decreased to 5.7%. We have two cash dividends coming into the portfolio in the next month from Annaly and AT&T. I'm confident in the long-run performance of this dividend portfolio, and I expect time will bear us out. With the global economy on the brink of another recession, dividends should outperform.

Fans of mortgage REITs should be heartened by Annaly's recent announcement that it has authorized a $1.5 billion share buyback over the next year. That's about 10% of its share count at recent prices. The move helped stem the recent slide in Annaly shares, and the buyback could also help keep shares above book value if the company follows through on its plans -- or at least convinces the market that it will. And of course, all those repurchased shares mean that Annaly has to pay out less in dividends. With shares trading below book value now, any buybacks would be immediately accretive. It will be interesting to see whether rival mREITs American Capital Agency (Nasdaq: AGNC  ) and ARMOUR Residential (NYSE: ARR  ) follow a similar game plan.

Fellow Fool Sean Williams gives his take on Annaly and other rivals in this article.

AT&T looks like it's likely to keep its rural operations and invest further in them, according to bond rater Fitch. AT&T may be considering investing in them further in order to speed up broadband offerings, in part because it could be difficult to separate its rural operations from its urban ones, says Fitch.

Dividends and earnings announcements
Here is the relevant news about earnings and dividends:

  • Philip Morris reported its third-quarter numbers, and Mr. Market seemed none too impressed. The company reported adjusted earnings of $1.45 per share -- up nearly 6% from the year-ago period and ahead of analysts' estimates. Revenue was down 5.3%, helped along by a 15% decline in sales in the EU. The company purchased $1.5 billion of its own shares in the quarter, quickly embarking on its recently announced plan to buy up to $18 billion in stock. Philip Morris projects annual adjusted earnings of $5.12 to $5.18 per share for the year.
  • Annaly went ex-dividend on Sept. 27 and pays out $0.50 per share on Oct. 29.
  • AT&T went ex-dividend on Oct. 5 and pays out $0.44 per share on Nov. 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. 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 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.

Jim Royal, Ph.D., owns shares of the 13 portfolio stocks mentioned in the table. The Motley Fool owns shares of Seaspan, Brookfield Infrastructure, ROIC, and Annaly. Motley Fool newsletter services have recommended buying shares of Vodafone, ROIC, National Grid, Brookfield Infrastructure, Exelon, Annaly, and Southern. Motley Fool newsletter services have recommended creating a write covered straddle position in Exelon. Motley Fool newsletter services have recommended creating a covered straddle position in 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.


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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 October 21, 2012, at 10:09 AM, wigan4 wrote:

    Jim, my personal portfolio is very similar to yours, and like you I believe (and have each and every year of the five I've run mine so far) I'll beat the S&P in the long run. But in the 'medium' run there will be some fluctuations. When I built mine I had the explicit goal of staying even with the S&P in the 'up' years, and thrashing it in the down years. And yours is very much the same.

    So, when we run into a year like this, although it's true you're 'only' .6% ahead of the market right now, the real point is that in a 'great' 15%-type up year you've stayed even with the market with a somewhat defensive, income oriented portfolio. And whenever a year like last year comes along, you'll crush it.

    So sure, track the tactical goal from month to month and even year to year, but don't lose sight of the fact of the overall strategic goal of staying even in the good years and making gains in the bad years. By that overall measure, your portfolio is working perfectly and this year represents a resounding success and confirmation of your thesis.

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