The World's Best Dividend Portfolio

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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

Recent Price

Total Value

Return

Southern Company (NYS: SO) $39.7125.0818$40.89$1,025.593.0%
Exelon (NYS: EXC) $41.8223.818$42.30$1,007.501.1%
National Grid (NYS: NGG) $48.9020.3693$48.37$985.26(1.1%)
Philip Morris International (NYS: PM) $68.4914.5429$68.87$1,001.570.6%
Annaly Capital (NYS: NLY) $18.2455$17.29$950.95(5.2%)
Frontier Communications (NYS: FTR) $7.88126.4243$7.21$911.52(8.5%)
Plum Creek Timber (NYS: PCL) $38.4226$35.54$924.04(7.5%)
Brookfield Infrastructure Partners (NYS: BIP) $26.1238.2825$26.09$998.79(0.1%)
Vodafone (NAS: VOD) $26.5237.5566$26.53$996.380%
Seaspan (NYS: SSW) $14.6169$12.36$852.84(15.4%)
Cash $57.99 $57.99 
Dividends Receivable $35.28 $35.28 
Total Portfolio   $9,747.72(2.4%)
Investment in SPY    (10.0%)
Relative Performance (percentage points)    +7.6

Source: Capital IQ, a division of Standard & Poor's. Prices as of Aug. 25.

The portfolio is now outperforming the S&P 500 by 7.6 percentage points in its first two months or so. That's down from last week's outperformance of 9.2 points, and it's a good reminder that the numbers can change quickly. While we're ahead now, I'd prefer to see absolute outperformance. I'm not particularly concerned about short-term fluctuations, though. This dividend portfolio is designed to do better when the market is performing poorly. In the meantime, we'll cash our dividend checks and wait for an opportunity to reinvest those proceeds. Both Seaspan and Frontier have taken the market downturn hard and could be attractive places to add reinvested dividends.

Dividends and earnings announcements
We're moving out of earnings season and into dividend season, and we have a couple bits of news:

  • Seaspan went ex-dividend on Aug. 11 and paid out $0.1875 per share on Aug. 21. I've added that to our calculations above.
  • Southern Company went ex-dividend on July 28, and pays out its dividend of $0.4725 per share on Sept. 5.
  • Exelon went ex-dividend on Aug. 11 and will pay $0.525 per share on Sept. 8.
  • Plum Creek went ex-dividend on Aug. 12 and pays out a dividend of $0.42 per share on Aug. 30.
  • Brookfield Infrastructure goes ex-dividend on Aug. 29, with a payday on Sept. 29.
  • Frontier goes ex-dividend on Sept. 7 and pays out $0.1875 per share on Sept. 29.

Several stocks are set to go ex-dividend shortly. With the market volatility, we might have a good chance to reinvest those dividends at good prices. Naturally, I'd prefer to have more cash in the portfolio so I can take advantage of lower prices, but I won't be surprised to see stocks move lower in the coming weeks, as fears about Europe persist. Still, I'll be on the lookout for cheap dividend stocks.

A new study
A few months ago, I happened upon a new study of the practical and academic research on dividends. It's one of my favorite pieces on the power of income investing. Among the findings from the Tweedy, Browne survey were the following:

  • "There is substantial empirical evidence to support a direct correlation between high dividend yields and attractive total returns."
  • "At least one study demonstrated that the returns associated with market-beating high dividend yield stocks were also less volatile in terms of the standard deviation of returns."
  • "At least one study found that high dividend yield stocks outperformed other value strategies as well as the overall stock market return in declining markets."

With good total returns, less volatility, and better downside protection, high-yield stocks offer many advantages. Yet the best returns came not from the absolute highest-yielding stocks but rather from the second-highest tier -- a good reminder that ultra-high yields are often high for the wrong reasons .

The 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. 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 13 names from a free report from Motley Fool's expert analysts called "13 High-Yielding Stocks to Buy Today." Hundreds 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.

At the time this article was published Jim Royal, Ph.D., owns shares of every company mentioned here (like a boss). The Motley Fool owns shares of Philip Morris, Seaspan, Brookfield Infrastructure, and Annaly Capital. The Fool owns shares of and has written puts on Plum Creek.Motley Fool newsletter serviceshave recommended buying shares of Philip Morris, Brookfield Infrastructure, Vodafone, National Grid, Exelon, and Southern Company.Motley Fool newsletter serviceshave recommended creating a write covered straddle position in Seaspan, as well as a covered strangle position in Exelon. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. This may be the world's best dividend portfolio, but The Motley Fool has the world's bestdisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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