The World's Best Dividend Portfolio

By Jim Royal

March 17, 2012 

Article from The Motley Fools

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 for yourself. Now let's check out the results so far.

Our total portfolio performance since inception is 7.7%, up just slightly since last week, but falling further behind that of the dividend-adjusted S&P. We have seven of 10 stocks in positive territory. Despite the underperformance, we're still achieving a much larger yield than the S&P, which should help ballast the portfolio when times get tough.

As for portfolio composition, I continue to like Philip Morris and Brookfield Infrastructure for their all-weather performance. They simply keep pushing out growing dividend streams year after year and have defensible businesses in consumer goods and infrastructure, respectively. So over time I expect them to continue to climb higher. I also continue to like the utilities, especially National Grid, for its global exposure but also for the good returns it earns in the U.K. and the billions in new investment needed in the next few years to maintain their infrastructure. Of these three, I expect to see the highest total returns from Philip Morris.

Dividends and other announcements

We're through earnings season, and we have limited dividend news for the moment.

• Perhaps my favorite stock in the portfolio, Philip Morris, took advantage of low long-term interest rates this week. The company sold $700 million of 30-year notes at 4.5% and $550 million of five-year notes at 1.625%. That's very cheap financing and yet another reason to like the company's future.
• Frontier is one of the most shorted stocks on the market, with nearly 18% of shares short. If the stock ever turns around, those shorts could help juice the stock price. However, Frontier's recent dividend cut to $0.10 quarterly makes it even easier for the shorts to hang on, since they also no longer have to pay Frontier's $0.1875 quarterly dividend to maintain their short position. Fellow Fool Rex Moore also warns that Frontier's tangible book value stands at -$3.8 billion.
• In its latest earnings report, we got some dubious news for Annaly Capital, one of the most popular dividend stocks because of its massive payout. In this video article called "Bad News for the Market's Hottest Dividends," I explain why investors should be cautious on the mortgage REITs going forward -- it has to do with the declining spreads the businesses earn. Fellow Fool Alex Dumortier also has a good column on what to watch out for in the mortgage REIT sector.

Dividend news:

Brookfield Infrastructure went ex-dividend on Feb. 27 and pays out $0.375 per share on March 30.

Frontier went ex-dividend on March 9 and pays out $0.10 per share on March 30.

All that, of course, means more money coming into our pockets.

It's fun to sit back and get paid, and with the current 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 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 these 10 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. Get instant access to the names of these high yielders.

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Jim Royal, Ph.D., owns shares of the 10 portfolio stocks mentioned in the table. The Motley Fool owns shares of Annaly, Seaspan, Plum Creek, and Brookfield Infrastructure and has created a covered strangle position in Plum Creek. Motley Fool newsletter services have recommended buying shares of Exelon, Philip Morris, Annaly, Southern, National Grid, Vodafone, and Brookfield Infrastructure, as well as writing a covered strangle position in Exelon and a covered straddle position in 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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Did You Miss This 100% Return?

By Amanda B. Kish, CFA | More Articles 

March 14, 2012

Article from The Motley Fools

It's certainly starting to feel like things are getting better out there in the U.S. economy. Job creation has picked up in recent months, and more of the long-term unemployed are slowly trickling back into the workforce.

Of course, the fact that the stock market is up almost 10% year-to-date has also had a positive effect on investors' psyches. And while initial signs are indicating that investors are finally moving back into stocks and stock-oriented mutual funds after hiding out in bonds and cash for the past several years, it may be a little too late for these folks to capitalize on the 100% return opportunity that they missed while sitting on the sidelines.

Staying in the game

If you're a stock investor, you're probably always on the lookout for the next multibagger. You may pass over those less-exciting companies that generate small but consistent returns each year in favor of the superstar stock that will double, triple, or quadruple your money in short order. And while you can certainly leave plenty of room in your portfolio to pursue these red-hot opportunities, if you pass up the steady, unexciting investments, you're missing out on a lot.

That investment I mentioned earlier with the 100% gain? That would be the plain old S&P 500 index, measured from the bottom of the bear market in March 2009. Doubling your money in three years? I think that's a proposition a lot of investors could get behind.

While buy-and-hold investing certainly hasn't gotten a lot of love in recent years, it still represents one of the best ways to profit from long-term market growth -- assuming you have the discipline to actually stick with your investments during the inevitable downturns. Fidelity Investments ran some numbers and found that the S&P 500 posted an average annual return of 8% in price appreciation alone (not including dividends) in the 30-year period that ended last June. However, investors who tried to time the market and missed just the five best trading days within that time span had an average return of just 6.4%. Those unlucky folks who missed the 20 best days had a mere 3.7% showing. So investing in the broad stock market can be a winning proposition over the long run, but you need to stay invested to reap those benefits.

Vehicles to get you there

While mutual fund inflows are signaling that investors are finally dipping more than their toes back into the stock market, not everyone is gung-ho about putting their money at risk if another recession or market rout materializes. If you're one of these skittish types, there's one investment that I would recommend for getting back into the game: inexpensive exchange-traded funds. These funds will give you broad exposure to various segments of the market at a low price -- that will keep risk low and fees to a minimum, two factors that should calm the mind of any reluctant investor.

For the broadest exposure to the domestic U.S. stock market, consider a wide-ranging fund like Vanguard Total Stock Market ETF (NYSE: VTI  ) or the Schwab U.S. Broad Market ETF (NYSE: SCHB  ) , which come with annual expenses of 0.07% and 0.06%, respectively, and offer exposure to U.S. stocks of all sizes. For a global mandate that includes exposure to both domestic and foreign stocks, Vanguard Total World Stock ETF (NYSE: VT  ) is a complete one-stop shop with a reasonable 0.22% price tag.

Looking a little more narrowly, if you want to home in on some of the more attractively priced areas of the market, consider a fund that invests in high-quality, dividend-yielding large-cap stocks. Two of the better options in this space are Vanguard Dividend Appreciation ETF (NYSE: VIG  ) and the SPDR S&P Dividend ETF (NYSE: SDY  ) .

P/Es on large-cap stocks are significantly discounted compared to those of smaller companies, so it makes sense to focus on the corner of the market with more appreciation potential. And why not get a little income with your investments by looking to dividend payers? The bottom line is, there are many quick, cheap, and low-risk ways for you to get back in the game before another fantastic return opportunity passes you by.

What to do now

Of course, odds are pretty good that investors who get back into the market now won't see their money double again three years from now. That's the benefit that comes from staying in the market even during the darkest days. But looking ahead, stocks are very likely to outperform bonds in the next few years, so you don't want to be sitting on the sidelines. And if the economy continues to improve, there could be even more room for equities to appreciate. So if you've been an equity onlooker in recent years, get ready to start flexing those investing muscles once again.

No matter what type of return your portfolio has seen in recent years, you may already be behind the game in saving for your retirement. If you're not sure if you're on track to safely leave your working years behind you, be sure to check out our newest special free report which highlights the shocking truth about your retirement. Don't miss this chance to grab your free copy of this can't-miss report today!

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It's why David recently handpicked a small team of motivated portfolio managers. You see, he thinks these odds can get even better! And he'd like to prove it to you...

Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. 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.

Article from The Motley Fools