In order to create a long-term high-yielding stock portfolio that can outperform the market by a big margin, I have used the following screen. It is based on an attempt to search for profitable companies with high dividend yield that their last dividend declared is greater than the last dividend paid.
In many of my previous screens, the demand was to rebalance the portfolio every four weeks and replace the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. Since most investors do not have the opportunity to rebalance the portfolio every four weeks, in the following screen the demand is to rebalance the portfolio only once a year.
The screen's method that I use to build this portfolio requires all stocks to comply with all following demands:
- The stock does not trade over-the-counter (OTC).
- Market cap is greater than $100 million.
- Price is greater than 1.00.
- Dividend yield is greater than 4.0%.
- The payout ratio is less than 100%.
- Last dividend declared is greater than the last dividend paid.
- The twenty stocks with the lowest payout ratio 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 and finviz.com.
After running this screen on October 04, 2013, before the market open, I discovered the following twenty stocks:
The table below presents the dividend yield, the payout ratio, the last dividend declared, and the last dividend paid, for the twenty companies.
Oaktree Capital Group, LLC (OAK)
Oaktree Capital Group, LLC operates as a global investment management firm that focuses on alternative markets.
Oaktree Capital Group has a very low forward P/E of 11.09. The price to free cash flow is extremely low at 0.94, and the average annual earnings growth estimates for the next five years is quite high at 11%. The forward annual dividend yield is very high at 11.30%, and the payout ratio is at 64.2%.
The OAK stock price is 1.19% above its 20-day simple moving average, 2.24% above its 50-day simple moving average and 9.01% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
On August 06, Oaktree Capital Group reported its second-quarter results, which beat EPS expectations by $0.19 and beat on revenues. Adjusted net income rose $131.5 million, to $297.0 million in the second quarter of 2013 from $165.5 million in the second quarter of 2012, on a $214.0 million increase in total segment revenues. The 63% growth in revenues, to $555.1 million from $341.1 million, reflected a 162% gain in incentive income, to $338.1 million from $129.0 million, and a 49% increase in investment income, to $34.6 million from $23.2 million.
In the report, Howard Marks, Chairman, said:
Our investment teams continue to deliver both exceptional cash returns and new opportunities for future growth and income. In the second quarter, our closed-end funds distributed $4.7 billion to investors, yielding record incentive income of $338.1 million. As a demonstrated leader in credit strategies, we continue to raise significant capital for our newest products to provide our clients with superior risk-adjusted investment performance across market cycles.
Oaktree Capital Group has compelling valuation metrics and good earnings growth prospects, and considering the fact that the stock is in an uptrend, OAK stock can move higher. Furthermore, the very rich dividend represents a gratifying income.
Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy, and the company's massive debt of $2.11 billion.
Textainer Group Holdings Limited (TGH)
Textainer Group Holdings Limited, through its subsidiaries, engages in the purchase, ownership, management, leasing, and resale of a fleet of marine cargo containers worldwide.
Textainer Group Holdings has a very low trailing P/E of 9.95 and a very low forward P/E of 9.90. The PEG ratio is low at 1.00, and the average annual earnings growth estimates for the next five years is quite high at 9.98%. The forward annual dividend yield is high at 4.94%, and the payout ratio is at 46.3%. The annual rate of dividend growth over the past three years was very high at 21% and over the past five years was also high at 15.36%.
On August 06, Textainer Group Holdings reported its second-quarter results, which missed EPS expectations by $0.16 and missed on revenues.
- Total revenues of $130.1 million, an increase of 8.4% from the prior year quarter
- Net income attributable to Textainer Group Holdings Limited common shareholders of $48.8 million, an increase of 6.6% from the prior year quarter
- Adjusted EBITDA of $106.2 million, an increase of 14.6% from the prior year quarter
- Business Highlights:
- Continued strong pace of expansion, investing $494 million in new and used containers year-to-date following $198 million invested in new containers in the fourth quarter of 2012 for lease outs in 2013;
- Total fleet size grew by 9.4% to 2.9 million TEU, given the strong pace of investment over the past year;
- Announced a collaboration with Trifleet allowing expansion into tank leasing with one of the leaders in the industry;
- Reduced average effective interest rate (which includes interest rate swaps) by 145 basis points year-over-year and by 34 basis points compared to the prior quarter, while increasing the size of several financing facilities;
- Achieved average utilization of 94.7% during the quarter and 94.3% currently; and
- Increased dividend to $0.47 per share, resulting in the Company's fourteenth consecutive quarterly increase.
Textainer Group Holdings has recorded strong revenue, EPS and dividend growth during the last three years and the last five years; the annual rate of revenue growth over the past five years was at 12.83%, the EPS growth was at 18.99, and the dividend growth was at 15.36%
Although TGH missed second-quarter EPS and revenues expectations, its valuation metrics are very low, and the company growth prospects are good, a capital gain can be expected along the very rich dividend.
Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy, decrease in the global trade, and the company's massive debt of $2.44 billion.
Icahn Enterprises, L.P. (IEP)
Icahn Enterprises L.P. engages in the investment, automotive, gaming, railcar, food packaging, metals, real estate, and home fashion businesses in the United States and internationally.
Source: company presentation
Icahn Enterprises has a trailing P/E of 21.44 and a very low forward P/E of 12.10. The price-to-cash ratio is very low at 1.85, and the price-to-sales ratio is also very low at 0.49. The forward annual dividend yield is very high at 5.91%, and the payout ratio is only 8%.
The IEP stock price is 4.84% above its 20-day simple moving average, 9.59% above its 50-day simple moving average and 23.53% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
Icahn Enterprises has recorded strong revenue and EPS growth, during the last three years and the last five years, as shown in the table below.
On August 07, Icahn Enterprises reported its second-quarter financial results, which missed EPS expectations by $1.04. For the three months ended June 30, 2013, revenues were $4.6 billion and net income attributable to Icahn Enterprises of $54 million, or $0.48 per LP unit. For the three months ended June 30, 2012, revenues were $4.2 billion and net income attributable to Icahn Enterprises was $257 million, or $2.37 per LP unit. For the second quarter of 2013, Adjusted EBITDA attributable to Icahn Enterprises was $277 million compared to $506 million in the second quarter of 2012. For the second quarter of 2013, Adjusted EBIT attributable to Icahn Enterprises was $164 million compared to $401 million in the second quarter of 2012.
During the second quarter of 2013, the board of directors of the general partner of Icahn Enterprises L.P. approved a modification to Icahn Enterprises' distribution policy to provide for an increase in the annual distribution from $4.00 to $5.00 per depositary unit, payable in either cash or additional depositary units, at the election of each depositary unit holder. On August 6, 2013, the Board of Directors of the general partner of Icahn Enterprises declared a quarterly distribution in the amount of $1.25 per depositary unit, which will be paid on or about October 9, 2013 to depositary unit holders of record at the close of business on August 16, 2013.
Although IEP missed expectations in its latest quarter report, considering its historical strong revenue and EPS growth, and its good valuation, an investor in IEP stock can expect a capital gain along the very rich dividend.
Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy and a decline in the automotive and the real estate markets.
In order to find out how such a screening formula would have performed during the last year, last 5 years and last 15 years, I ran the back-tests, which are available by the Portfolio123's screener.
The back-test takes into account running the screen once a year 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.
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.
One year back-test
Five years back-test
Fifteen years back-test
The high-yielding screen has given much better returns during the last year, the last five years and the last fifteen 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. Furthermore, the maximum drawdown, which normally is much bigger in a small portfolio than in the benchmark, was smaller in the three years and the five years tests
One-year return of the screen was very high at 44.23%, while the return of the S&P 500 index during the same period was at 16.74%.
The difference between the high-yielding screen to the benchmark was even more noticeable in the 15 years back-test. The 15-year average annual return of the screen was at 15.86%, while the average annual return of the S&P 500 index during the same period was only 2.20%. The maximum drawdown of the screen was at 61.77%, while that of the S&P 500 was at 65.01%.
Although this screening system has given superior results, I recommend readers use this list of stocks as a basis for further research.