October High Yield Dividend Champion Portfolio

 |  Includes: AWR, CVX, HP, LEG, MO, NWN, UGI, UVV, WGL, XOM
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.

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 rank 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. We still begin with the Dividend Champion list, which is first sorted by yield and the lowest 50% yielding stocks are eliminated. Eliminating the lowest yielding stocks ensures that only stocks with a relatively "high" yield make the portfolio.

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, as like last month, there is no portfolio turnover. All current positions will be held until next month.

The top 15 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are September month-end):

Name Symbol Yield Payout A/D* 3-yr
Chevron Corp. CVX 3.29 32.41 0.96 9.68
Helmerich & Payne Inc. HP 2.90 30.44 1.52 11.87
Altria Group Inc. MO 5.59 87.67 1.25 8.71
ExxonMobil Corp. XOM 2.93 31.74 1.08 9.51
WGL Holdings Inc. WGL 3.93 62.22 1.35 2.89
Target Corp. TGT 2.69 41.45 1.10 24.74
Universal Corp. UVV 3.93 33.96 0.58 2.13
American States Water AWR 2.94 53.29 1.53 7.93
UGI Corp. UGI 2.89 47.48 1.15 10.53
Questar Corp. STR 3.20 60.50 1.03 9.61
Leggett & Platt Inc. LEG 3.98 69.77 1.15 3.81
Northwest Natural Gas NWN 4.34 85.45 1.24 3.81
Clorox Company CLX 3.48 65.74 0.91 8.91
Tompkins Financial Corp. TMP 3.29 58.91 0.84 5.70
HCP Inc. HCP 5.13 108.25 1.14 2.82
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The current portfolio is below:

Position Purchase Date
CVX 12/6/2012
WGL 12/6/2012
HP 7/5/2013
UVV 4/5/2012
UGI 8/5/2013
LEG 8/5/2013
XOM 4/5/2013
MO 3/5/2013
AWR 7/5/2013
NWN 4/5/2013
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The portfolio performance is below along with three benchmarks:

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Disclosure: No positions