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I tried to create a high-yielding stock portfolio that can outperform the market by a big margin. The following screen shows such promise. I have searched for companies that pay very rich dividends with a low payout ratio. 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. The stock does not trade over-the-counter (OTC).
  2. Price is greater than 1.00.
  3. Market cap is greater than $100 million.
  4. Dividend yield is greater than 4.0%.
  5. The payout ratio is less than 100%.
  6. Last dividend declared is greater than the last dividend paid.
  7. Total debt to equity is less than 1.0.
  8. The ten stocks with the lowest payout ratio among all the stocks that complied with the first seven demands.

I used 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 Yahoo Finance, finviz.com and Portfolio123.

After running this screen on August 07, 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 last dividend declared, and the total debt to equity for the 10 companies.

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Golar LNG Ltd (NASDAQ:GLNG)

Golar LNG Limited, a midstream liquefied natural gas (NYSEMKT:LNG) company, engages in the transportation, regasification and liquefaction, and trading of LNG.

Golar LNG Ltd has a very low debt (total debt to equity is only 0.22), and it has a very low trailing P/E of 3.17 and a very low forward P/E of 12.56. The forward annual dividend yield is high at 4.97%, and the payout ratio is only 12.4%.

The GLNG stock price is 2.63% above its 20-day simple moving average, 7.06% above its 50-day simple moving average and 0.36% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

GLNG will report its latest quarterly financial results on August 30. GLNG is expected to post a profit of $0.26 a share, a 41% decline from the company's actual earnings for the same quarter a year ago.

All these factors -- the very low multiples, the very rich dividend, and the fact that the stock is in an uptrend -- make GLNG stock quite attractive.

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Chart: finviz.com

Nevsun Resources Ltd (NYSEMKT:NSU)

Nevsun Resources Ltd., a gold and base metal mining and exploration company, together with its subsidiaries, engages acquisition, exploration, development, and production of mineral properties in Africa.

Nevsun Resources has no debt at all, and it has an extremely low trailing P/E of 5.35 and a very low forward P/E of 5.57. The price-to-sales ratio is at 1.24, and the price-to-book-value is very low at 0.96. The price to free cash flow for the trailing 12 months is very low at 6.67, and the current ratio is very high at 16.60. The forward annual dividend yield is high at 4.59%, and the payout ratio is only 17.4%.

NSU will report its latest quarterly financial results in August. NSU is expected to post a profit of $0.02 a share, a $0.17 decline from the company's actual earnings for the same quarter a year ago.

All these factors -- the very low multiples, the very rich dividend, and the fact that the company is rich in cash ($1.68 a share) and has no debt -- make NSU stock quite attractive.

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Chart: finviz.com

Nam Tai Electronics Inc (NTE)

Nam Tai Electronics, Inc. provides electronics manufacturing and design services to the original equipment manufacturers of telecommunication and consumer electronic products. The company was founded in 1975 and is based in Shenzhen, the People's Republic of China.

Nam Tai Electronics has no debt at all, and it has an extremely low trailing P/E of 4.52 and a very low forward P/E of 13.33. The PEG ratio is exceptionally low at 0.36, and the average annual earnings growth estimates for the next five years is quite high at 12.50%. The price to free cash flow for the trailing 12 months is very low at 6.88, and the price-to-book-value ratio is also very low at 0.89. The forward annual dividend yield is very high at 8.19%, and the payout ratio is only 26.6%.

On August 05, Nam Tai Electronics reported its second-quarter results. Net sales in the second quarter of 2013 were $167.9 million, excluding the discontinued LCMs for tablets business of $30.7 million, an increase of 64.1%, compared to the net sales of $102.3 million, excluding the discontinued businesses of $113.7 million, for the same quarter of 2012. Gross profit in the second quarter of 2013 was $15.7 million, an increase of 2.7%, compared to $15.3 million in the second quarter of last year. Gross profit margin for the second quarter of 2013 was 9.4%, a decrease of 5.6%, compared to 15.0% in the second quarter of last year. Operating income for the second quarter of 2013 was $8.4 million, a decrease of 14.3%, compared to $9.8 million in the second quarter of last year. Net loss in the second quarter of 2013 was $31.9 million, or negative $0.71 per diluted share, compared to net income of $9.4 million, or $0.21 per diluted share, in the second quarter of last year.

In the report, the company explained its dividend policy:

The Company's decision to continue dividend payments in 2013 as set out in the above table does not necessarily mean that cash dividend payments will continue after 2013. Whether future dividends will be declared will depend upon Company's future growth and earnings, of which there can be no assurance, and the Company's cash flow needs for business transformation. Accordingly, there can be no assurance that cash dividends on the Company's common shares will be declared beyond those declared for 2013, what the amounts of such dividends will be or whether such dividends, once declared for a specific period, will continue for any future period, or at all.

Although Nam Tai's valuation metrics are excellent, and it is rich in cash ($4.41 a share) and has no debt, the NTE stock is very volatile and quite dangerous.

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Chart: finviz.com

China Petroleum & Chemical Corp Sinopec (NYSE:SNP)

China Petroleum & Chemical Corporation, an energy and chemical company, through its subsidiaries, engages in the oil and gas, and chemical operations in the People's Republic of China. The company was founded in 2000 and is based in Beijing, the People's Republic of China.

China Petroleum has a very low trailing P/E of 8.29 and a very low forward P/E of 6.37.The price-to-sales ratio is very low at 0.18, and the price-to-book-value is also very low at 1.00. The PEG ratio is very low at 0.73, and the average annual earnings growth estimates for the next five years is quite high at 11.4%. The forward annual dividend yield is quite high at 4.14%, and the payout ratio is only 37.8%. The annual rate of dividend growth over the past three years was very high at 26.70%, and over the past five years was also very high at 17.81%.

All these factors -- the very low multiples, the rich dividend, the fact the company consistently has raised dividend payments, and the fact that SNP stock is selling at book value -- make SNP stock quite attractive.

(click to enlarge)

Chart: finviz.com

ConocoPhillips (NYSE:COP)

ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids on a worldwide basis.

ConocoPhillips has a low debt (total debt to equity is only 0.44), and it has a very low trailing P/E of 11.45 and a very low forward P/E of 11.05. The forward annual dividend yield is quite high at 4.11%, and the payout ratio is only 42.6%. The annual rate of dividend growth over the past three years was quite high 11.39%, and over the past five years was also high at 9.99%.

The COP stock price is 2.99% above its 20-day simple moving average, 7.19% above its 50-day simple moving average and 14.66% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On August 01, ConocoPhillips reported its second-quarter results, which beat EPS expectations by $0.11 and beat on revenues.

Second-Quarter Highlights

  • Strong second-quarter production performance; raising full-year production guidance.
  • Second-quarter production of 1,552 MBOED, including continuing operations of 1,510 MBOED and discontinued operations of 42 MBOED.
  • Major turnarounds and tie-in activity on plan.
  • Eagle Ford production of 121 MBOED, up 98 percent compared with second-quarter 2012.
  • Christina Lake Phase E start-up in July; four additional major projects on track for start-up by year end in the North Sea and Malaysia.
  • Exploration momentum continues with drilling in the Gulf of Mexico, Australia's Browse Basin, and unconventional plays in Canada and the Lower 48.
  • Increased quarterly dividend by 4.5 percent.

The compelling valuation metrics, the rich dividend, the good second-quarter results, the fact that the company consistently has raised dividend payments, and the fact that the stock is in an uptrend are all factors that make COP stock quite attractive.

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Chart: finviz.com

IAMGold Corp (NYSE:IAG)

IAMGOLD Corporation engages in the exploration, development, and operation of mining properties. Its products include gold, silver, niobium, and copper deposits.

IAMGold has a very low debt (total debt to equity is only 0.17), and it has a very low trailing P/E of 7.32 and a very low forward P/E of 11.17. The price-to-book-value is very low at 0.44. The forward annual dividend yield is high at 5.69%, and the payout ratio is at 47.1%. The annual rate of dividend growth over the past three years was very high 60.91%, and over the past five years was also high at 32.99%.

IAMGold will report its latest quarterly financial results on August 11. IAG is expected to post a profit of $0.09 a share, a 55% decline from the company's actual earnings for the same quarter a year ago.

The compelling valuation metrics, the very rich dividend, the fact that the company consistently has raised dividend payments, and fact that the company is rich in cash ($2.02 a share) and has low debt are all factors that make IAG stock quite attractive.

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Chart: finviz.com

Sunoco Logistics Partners LP (NYSE:SXL)

Sunoco Logistics Partners L.P. engages in the transport, terminalling, and storage of crude oil and refined products in the United States.

Sunoco has a low debt (total debt to equity is only 0.38), and it has a very low trailing P/E of 13.13 and a forward P/E of 19.67. The price-to-book-value is at 1.19, and the average annual earnings growth estimates for the next five years is quite high at 12%. The forward annual dividend yield is at 4.01%, and the payout ratio is at 49%. The annual rate of dividend growth over the past three years was high 10.23%, and over the past five years was also high at 10.61%.

SXL will report its latest quarterly financial results on August 07. SXL is expected to post a profit of $0.85 a share, a 33% decline from the company's actual earnings for the same quarter a year ago.

All these factors - the low multiples, the rich dividend, and the fact the company consistently has raised dividend payments -- make SXL stock quite attractive.

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Chart: finviz.com

KKR & Co LP (NYSE:KKR)

Kohlberg Kravis Roberts & Co. is a private equity investment firm specializing in acquisitions, leveraged buyouts, management buyouts, special situations, growth equity, mature, and middle market investments.

Kohlberg Kravis Roberts has a very low trailing P/E of 9.72 and a very low forward P/E of 8.82. The price to free cash flow for the trailing 12 months is extremely low at 0.72. The forward annual dividend yield is very high at 7.91%, and the payout ratio is at 53.5%.

The KKR stock price is 2.02% above its 20-day simple moving average, 5.96% above its 50-day simple moving average and 20.2% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 26, KKR reported its second-quarter results, which missed EPS expectations by $0.02. Total distributable earnings were $403.8 million for the quarter ended June 30, 2013, down from $406.1 million for the quarter ended June 30, 2012. Total distributable earnings were $694.4 million for the six months ended June 30, 2013, up from $570.2 million in the comparable period of 2012.

All these factors -- the very low multiples, the very rich dividend, and the fact that the stock is in an uptrend -- make KKR stock quite attractive.

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Chart: finviz.com

Transportadora De Gas Del Sur SA Tgs (NYSE:TGS)

Transportadora de Gas del Sur S.A. engages in the transportation of natural gas primarily in Latin America.

Transportadora de Gas del Sur has an very low trailing P/E of 6.32 and a very low forward P/E of 4.90. The price to free cash flow for the trailing 12 months is extremely low at 5.95, and the price-to-book-value ratio is also very low at 0.84. The forward annual dividend yield is very high at 14.80%, and the payout ratio is at 53.7%. The annual rate of dividend growth over the past five years was very high at 31.75%.

The TGS stock price is 4.45% above its 20-day simple moving average, 7.15% above its 50-day simple moving average and 21.41% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

The compelling valuation metrics, the very rich dividend, the fact that the stock is trading way below book value, and the fact that the stock is in an uptrend are all factors that make TGS stock quite attractive.

(click to enlarge)

Chart: finviz.com

Star Gas Partners LP (NYSE:SGU)

Star Gas Partners, L.P., through its subsidiary, Petro Holdings, Inc., operates as a home heating oil and propane distributor and services provider in the United States.

Star Gas Partners has a low long-term debt (total long-term debt to equity is only 0.42), and it has a very low trailing P/E of 11.18. The price-to-sales ratio is very low at 0.17, and the price-to-book-value is also very low at 0.99.The forward annual dividend yield is very high at 6.71%, and the payout ratio is at 56%.

SGU will report its latest quarterly financial results on August 07. The reported results will probably affect the stock price in the short term.

(click to enlarge)

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 and 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. The number of stocks left after each demand can also be seen in the chart.

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One-year back-test

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Five-year back-test

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14-year back-test

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Summary

The high-yielding dividend 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 tests.

One-year return of the screen was very high at 35.28%, while the return of the S&P 500 index during the same period was at 21.19% and that of the Russell 3000 index was at 23.07%.

The difference between the long-term dividend screen to the benchmarks was even more noticeable in the 14 years back-test. The 14-year average annual return of the screen was at 21.89%, while the average annual return of the S&P 500 index during the same period was only 2.24% and that of the Russell 3000 index was at 2.94%. The maximum drawdown of the screen was at 55.17%, while that of the S&P 500 was at 56.39% and the maximum drawdown of the Russell 3000 index was at 57.07%.

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

Disclosure: I am long IAG. 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.

Source: Building A High-Yielding Stock Portfolio That Can Outperform By A Big Margin