High Yield Dividend Champion Portfolio - March Update

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 |  Includes: APD, AWR, CVX, GPC, MO, UGI, UHT, UVV, WBA, WGL
by: Scott's Investments

In December 2010, I created a screen/hypothetical portfolio called the "High Yield Dividend Champion Portfolio." The screen is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott's Investments (see the right hand column for a link to the spreadsheet).

Like many of the screens, strategies, and portfolios I track and prefer, the High Yield Dividend Champion Portfolio uses a small number of historically relevant ideas to create a simple, yet powerful investment plan. As I previously detailed, "Some studies have shown that the, highest yielding, low payout stocks perform better over time than stocks with higher payouts and lower yields."

The High Yield Dividend Champion Portfolio attempts to capture the best high yield, low payout stocks with a history of raising dividends. There are numerous ways to gauge the "best" high yield/low payout stocks. The screening process for this portfolio starts with the "Dividend Champions" as compiled by DRIP Investing. The list is comprised of stocks that have increased their dividend payout for at least 25 consecutive years.

In January I announced some changes to the ranking system. The changes were not due to poor performance – the strategy has returned over 50% in the past two-plus years:

Click to enlarge

Click to enlarge

We still begin with the Dividend Champion list. The list is first sorted by yield and the lowest 50% yielding stocks are eliminated. The remaining stocks are then assigned a rank based on their yield (the higher the yield the higher the rank), payout ratio (the lower the payout ratio the higher the rank), 3 year dividend growth rate, and 5/10 year Dividend Acceleration/Deceleration (5-year average increase divided by 10-year average increase). Extra weight is given to yield and payout ratio rankings.

The top 10 stocks based on the new ranking system make the portfolio. Stocks will be sold at the re-balance date (generally around the 5th of the month) when they drop out of the top 15 (to limit turnover) and are replaced with the next highest rated stock.

This month there are two new positions. 1st Source (NASDAQ:SRCE) was sold for a one month gain of 2.92% and a purchase date of 2/5/2013. Diebold (NYSE:DBD) was sold for a loss of 13.92% (excluding dividends) with an original purchase date of 8/3/12.

Proceeds from the sale were used to purchase 395 shares of Altria Group (NYSE:MO) and 371 shares of UGI Corp (NYSE:UGI).

The top 17 stocks based on the new ranking methodology are below and displayed in order of their ranking:

Name Symbol Total Rank
Chevron Corp. CVX 23.5
WGL Holdings Inc. WGL 27
Genuine Parts Co. GPC 28
Altria Group Inc. MO 28.25
UGI Corp. UGI 28.5
Universal Health Realty Trust UHT 30.5
Air Products & Chem. APD 30.5
Tompkins Financial Corp. TMP 33
Leggett & Platt Inc. LEG 33.25
Walgreen Company WAG 33.75
Pitney Bowes Inc. PBI 34
Questar Corp. STR 34.75
McDonald's Corp. MCD 35.25
American States Water AWR 35.25
Northwest Natural Gas NWN 35.5
Universal Corp. UVV 35.5
Procter & Gamble Co. PG 35.5
Click to enlarge

The current portfolio is below:

Position Purchase Date Percentage Gain/Loss Excluding Dividends Current Yield
CVX 12/6/2012 10.78% 3.05%
WGL 12/6/2012 10.36% 3.94%
GPC 1/7/2013 10.88% 2.95%
UVV 4/5/2012 24.17% 3.54%
WAG 1/7/2013 9.52% 2.70%
APD 2/5/2013 -0.67% 2.95%
AWR 2/5/2013 9.31% 2.56%
MO 3/5/2013 0.00% 5.14%
UGI 3/5/2013 0.00% 2.97%
UHT 7/3/2012 36.35% 4.28%
Click to enlarge

All returns exclude commissions and taxes and are hypothetical. Real results will differ.