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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 and the Russell 3000 benchmarks. Although the past guarantees nothing, it does provide insight into how this screen has performed under various economic conditions over varying time frames.

I have searched for profitable companies that are included in the Russell 3000 index that pay very rich dividends with a low payout ratio and have shown dividend growth over the past five years. Those stocks also would have to show low debt.

The screen's method that I use to build this portfolio requires all stocks to comply with all following demands:

  1. Price is greater than 1.00.
  2. Market cap is greater than $100 million.
  3. Dividend yield is greater than 5.0%.
  4. The payout ratio is less than 100%.
  5. The annual rate of dividend growth over the past five years is positive.
  6. Total debt-to-equity ratio is less than 1.0.
  7. The ten stocks with the highest dividend yield among all the stocks that complied with the first six 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 July 16, 2013, before the market open, I discovered the following ten stocks:


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The table below presents the dividend yield, the payout ratio, the annual rate of dividend growth over the past five years, and the total debt-to-equity ratio for the ten companies.


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PennantPark Investment Corp (PNNT)

PennantPark Investment Corporation is a publicly listed business development firm specializing in direct and mezzanine investments in middle market companies.

PennantPark Investment Corporation's valuation metrics are better than those of its industry peers, as shown in the table below.


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PNNT will report its latest quarterly financial results on August 07. PNNT is expected to post a profit of $0.27 a share, a 3.5% decline from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.


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Chart: finviz.com

Terra Nitrogen Co LP (TNH)

Terra Nitrogen Company, L.P. engages in the production and sale of nitrogen fertilizer products. It primarily offers anhydrous ammonia and urea ammonium nitrate solutions.

Terra Nitrogen Company's valuation metrics are better than those of its industry peers, as shown in the table below.


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TNH will report its latest quarterly financial results on August 05.


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Chart: finviz.com

Triangle Capital Corp (TCAP)

Triangle Capital Corporation is a business development company specializing in private equity and mezzanine investments.

TCAP will report its latest quarterly financial results in July. TCAP is expected to post a profit of $0.57 a share, a 12% rise from the company's actual earnings for the same quarter a year ago.


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Chart: finviz.com

Inergy LP (NRGY)

Inergy, L.P., an integrated energy midstream master limited partnership, engages in the storage and transportation of natural gas and natural gas liquids (NGL) in the United States and Canada.

NRGY will report its latest quarterly financial results on July 29. NRGY is expected to post a profit of $0.03 a share, a $0.18 rise from the company's actual earnings for the same quarter a year ago.


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Chart: finviz.com

Baytex Energy Corp (BTE)

Baytex Energy Corp., an oil and gas company, engages in the acquisition, development, and production of crude oil and natural gas in the Western Canadian Sedimentary Basin; and the Williston Basin in the United States.


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Chart: finviz.com

Main Street Capital Corp (MAIN)

Main Street Capital Corporation is a business development company specializing in equity, equity related, and debt investments in small and lower middle market companies.

MAIN will report its latest quarterly financial results in July. MAIN is expected to post a profit of $0.50 a share, a 6.5% rise from the company's actual earnings for the same quarter a year ago.


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Chart: finviz.com

Pioneer Southwest Energy Partners LP (PSE)

Pioneer Southwest Energy Partners L.P. owns, acquires, explores, and develops oil and gas properties in the United States.

PSE will report its latest quarterly financial results on July 30. PSE is expected to post a profit of $0.52 a share, a 10% rise from the company's actual earnings for the same quarter a year ago.


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Chart: finviz.com

IAMGold Corp (IAG)

IAMGOLD Corporation engages in the exploration, development, and operation of mining properties.

IAG will report its latest quarterly financial results on August 11. IAG is expected to post a profit of $0.10 a share, a 50% decline from the company's actual earnings for the same quarter a year ago.


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Chart: finviz.com

Newmont Mining Corp (NEM)

Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties.

NEM will report its latest quarterly financial results on July 25. NEM is expected to post a profit of $0.46 a share, a 22% decline from the company's actual earnings for the same quarter a year ago.


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Chart: finviz.com

Back-testing

In order to find out how such a screening formula would have performed during the last year, last 5 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 benchmarks (S&P 500, Russell 3000), 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.

Since some readers could not get the same results that I got in some of my previous posts, I am giving, in the charts below, the Portfolio123 exact codes which I used for building this screen and the back-tests.


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One year back-test


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Five years back-test


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Fourteen years back-test


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Summary

The 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 and the Russell 3000 benchmarks. The Sharpe ratio, which measures the ratio of reward to risk, was also much better in the five years and the 14 years back-tests. One year return of the screen was at 29.60% while the return of the S&P 500 index during the same period was at 24.03% and the return of the Russell 3000 was at 25.32%.

The difference between the high-yielding stock screen to the benchmarks was much more noticeable in the 14 years back-test. The 14-year average annual return of the screen was at 19.07% while the average annual return of the S&P 500 index during the same period was only 2.18% and the return of the Russell 3000 was at 2.88%.

Although this screening system has given superior results, I recommend readers use this list of stocks as a basis for further research.

Source: High-Yielding Dividend Portfolio That Has Outperformed By A Big Margin