The High Yield Dividend Champion stock portfolio has been updated for February. The portfolio is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott’s Investments.
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.
To date the portfolio is up over 82%. I mentioned in the 2013 year in review that valuation of high yield stocks was a concern. In January’s update I noted that “I have lowered my expectations for future returns of US equities and high yield stocks.” January was not kind to US equities, however they rebounded in February, with SPY up over 7% in a month.
I added a valuation filter to the portfolio starting last month. 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 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 price-earnings (P/E) ratio. Extra weight is given to yield and payout ratio rankings. The 5/10 year Dividend Acceleration/Deceleration metric will no longer be used (5-year average increase divided by 10-year average increase)
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.
There is turnover in one position this month. American States Water (NYSE:AWR) is being sold at a capital gain of 12.99% and original purchase date of 7/5/13.
Proceeds from the sales will be used to purchase AT&T (NYSE:T), which is currently the second highest rated stock on the list..
The top 15 stocks based on my ranking methodology are below and displayed in order of their overall ranking (figures are February month-end):
|Eagle Financial Services||OTCQX:EFSI||3.30||36.19||3.27||10.95|
|Old Republic International||ORI||4.69||47.40||1.43||10.10|
|Tompkins Financial Corp.||TMP||3.30||46.11||5.03||13.97|
|Community Trust Banc.||CTBI||3.23||44.44||1.49||13.75|
|Helmerich & Payne Inc.||HP||2.53||36.98||80.79||14.61|
|Altria Group Inc.||MO||5.29||84.96||8.23||16.05|
|Wal-Mart Stores Inc.||WMT||2.57||39.59||15.27||15.40|
The current portfolio is below:
|Position||Purchase Price||Purchase Date||Percentage Gain/Loss Excluding Dividends|