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.
Philip Morris International
Plum Creek Timber
Brookfield Infrastructure Partners
Retail Opportunity Investments
Annaly Preferred D
Gramercy Property Trust
Investment in SPY (Including Dividends)
Relative Performance (Percentage Points)
There has been quite the switch in portfolio performance in the past couple weeks, and it appears that investors were switching out of dividend stocks. The total portfolio is now up 15.9%. That's down from recent weeks for a couple reasons -- first, just because of adding new money to the portfolio that hasn't had time to work. Second and the bigger reason, investors really have shifted out of dividend stocks for the moment, but we've found some great deals in Ryman Hospitality and Gramercy.
So that all leads us to underperformance on the S&P of 5.8 percentage points. Someday, investors will get over their short-term dislike for dividend stocks, and we'll narrow the gap. The blended yield is 4.8%.
The news that the Federal Reserve might slow quantitative easing seems to have spooked the market, especially for dividend stocks. The reasoning is that as interest rates rise, investors will switch out of dividend stocks and into bonds. Am I worried? Not at all. The historical evidence on dividend stocks suggests that they outperform over time. So why worry about some short-termers who trade out of them as interest rates might rise? Let's remember all the fear that attended the tax-rate increase on dividends at the end of last year. That led to some decent buying opportunities for people who were thinking longer-term. So now is not the time to panic.
As I mentioned before, I've added $1,000 in shares of Gramercy to the portfolio. While it doesn't pay a dividend now, I expect one in the near future and for shares to appreciate meaningfully.
I haven't yet added $1,000 in new money to Sprott Resource, but I'll look to do that in the next week. Sprott has really been hit hard as gold prices have plummeted, though less than 25% of its assets are actually gold. In fact, more than 50% are in energy, which I expect to do well as the economy improves.
With more than $500 in cash in the account now, I'm tempted to buy more Ryman, which is quite cheap for a quality franchise. On the last conference call, management was talking about taking on some debt to buy back shares -- a very shareholder-focused move. I hope they pursue this avenue further.
We finally got word on dividends from our two U.K. companies. National Grid will pay out about $2.09 per share on Aug. 21, while Vodafone distributes about $1.05 per share on Aug. 7. Those dividends contribute meaningfully to the nearly $160 in payouts that are owed to the portfolio.
Shares of Annaly common stock continue to get hammered. With the declining interest-rate spread, I thought it was a good time to sell the stock in March. I sold at $15.32 per share, but I also added the preferred stock around the same time. While the preferred has gotten hit in recent weeks because of the sell-off in all things REIT, it's down nowhere close to what the common stock has seen. The Series D now has an attractive 7.6% yield and trades below par, and it doesn't have nearly the downside that the common still has.
Philip Morris is having a tough time in Europe, as the euro malaise continues. But tobacco is a resilient business, and the company has other fast-growing areas to cultivate. And trading at less than 16 times this year's earnings and 14 times next year's, the stock should be a good long-term investment regardless of what happens this year in euro-land. While Philip Morris is facing more regulatory threats across the globe, take a look at what fellow Fool Austin Smith thinks about the company in this video.
Dividends and earnings announcements
Here is the recent news on earnings and dividends:
- Annaly Series D went ex-dividend on May 30 and pays out almost $0.48 per share on June 30.
- Brookfield went ex-dividend on May 29 and pays outs $0.43 per share on June 28.
- Ryman went ex-dividend on June 26 and pays outs $0.50 per share on July 14.
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 probably 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 these 12 tickers along with the nine names from a brand-new, free report from The 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 9 high yielders, simply click here -- it's free.
The article The World's Best Dividend Portfolio originally appeared on Fool.com.Jim Royal, Ph.D., owns shares of the 11 portfolio stocks mentioned in the table as well as Gramercy and Sprott. The Motley Fool recommends Brookfield Infrastructure, Exelon, National Grid, Retail Opportunity Investments, Seaspan, Southern, and Vodafone and owns shares of Gramercy Property, Brookfield Infrastructure, Philip Morris, Retail Opportunity Investments, Ryman Hospitality, Sprott, and Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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