I have created a very high-yielding stock portfolio. Back-testing the screening formula, which was the basis for this portfolio, has shown much better returns during the last year, the last five years and the last 14 years than the S&P 500 benchmark. Although the past guarantees nothing, it does provide insight into how this screen has performed under various economic conditions over varying time frames.
The screen's method that I use to build the very high-yielding stock portfolio requires all stocks to comply with all following demands:
- Market Cap is greater than $100 million.
- Last price is greater than $1.00.
- Dividend yield is greater than 5%.
- The payout ratio is less than 100%.
- The 10 stocks with the lowest payout ratio among all the stocks that complied with the first four demands.
I used the Portfolio123's powerful screener to perform the search and to run back-tests. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Portfolio123.
After running this screen on June 24, 2013, before the market open, I discovered the following 10 stocks: Equal Energy Ltd (NYSE:EQU), Icahn Enterprises LP (NYSE:IEP), Golar LNG Ltd (NASDAQ:GLNG), resud Sa Comercial Industrial Financiera Y Agropecuaria Cres (NASDAQ:CRESY), Corrections Corp of America (NYSE:CXW), Arlington Asset Investment Corp (NYSE:AI), Nam Tai Electronics Inc (NTE), BP PLC (NYSE:BP), Just Energy Group Inc (NYSE:JE) and Hi-Crush Partners LP (NYSE:HCLP).
The table below presents the 10 companies, their last price, their market cap and their industry.
The table below presents the dividend yield, the payout ratio, the forward P/E, the price-to-book-value ratio, and the price-to-sales ratio for the 10 companies.
In order to find out how such a screening formula would have performed during the last year, last five years and last 14 years, I ran the back-tests, which are available by the Portfolio123's screener.
The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmark (S&P 500), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests results are shown in the charts and the tables below.
One year back-test
Just a matter of curiosity, the table below presents the 10 companies originated by the screen formula one year before, on June 23, 2012.
Five years back-test
The table below presents the 10 companies originated by the screen formula on June 23, 2008.
Fourteen years back-test
The table below presents the 10 companies originated by the screen formula on September 11, 1999.
The very high-yielding stock screen has given much better returns during the last year, the last five years and the last 14 years than the S&P 500 benchmark. The Sharpe ratio, which measures the ratio of reward to risk, was also much better in all the three tests. One-year return of the screen was exceptionally high at 52.82% while the return of the S&P 500 index during the same period was at 20.20%. The difference between the very high-yielding stocks screen to the benchmark was much more noticeable in the 14 years back-test. The 14-year average annual return of the screen was at 17.61% while the average annual return of the S&P 500 index during the same period was only 1.81%. Although this screening system has given superior results, I recommend readers use this list of stocks as a basis for further research.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.