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Summary

  • This is a 6-month review of the returns on a $10,000.00 dividend portfolio compared to a $10,000.00 CD.
  • The $10,000.00 dividend portfolio outperformed the CD by $1,200.00.
  • The current financial environment makes dividend stocks better financial instruments than bank CDs.

On January 22, 2014, I wrote an article suggesting the following list of stocks as a replacement for $10,000.00 CD. You can read the original article here. The list of recommended stocks is below:

No. of Shares

Symbol

Company

Dividend

Stock Price

P/E

200

AT

Atlantic Power Corp

$0.37

$3.25

Loss

100

IRET

Investors Real Estate Trust

$0.52

$8.60

54

100

CYS

CYS Investments

$1.36

$7.75

Loss

100

OTCQB:OTCQB:BOMK

Bank of McKenney

$0.27

$8.75

9

100

VOC

VOC Energy Trust

$2.28

$15.85

10

100

AP

Ampco-Pittsburgh Corp

$0.72

$18.15

11

100

CTY

Qwest Corp 6.125% Notes

$1.53

$20.55

100

PSEC

Prospect Capital Corp

$1.33

$11.35

10

I stated that I would follow up on this article in 6 months and perhaps revise the holdings and then again in a year to see if the performance of this $10,000.00 investment would do better than available CDs from a bank. The portfolio above amounted to $9,750.00 plus brokers fees at that time. This article takes each stock individually, adds the dividend payments and considers the price of each issue as of July 11, 2014, to ascertain where the portfolio stands at this point in time.

Many writers and stock forecasters use back testing to prove that investing in certain ways can improve one's income and fortune. This exercise is not using back testing where one can use stocks that have persisted through time, but uses stocks that can have anything happen to them. This is a genuine test of the thesis that $10,000.00 invested in dividend stocks can offer better returns than a $10,000.00 CD in the current financial environment.

Review of the Current Portfolio

AT or Atlantic Power Corp., pays a monthly dividend of $0.03 each month. The total dividends received from AT now stand at $0.36. The current price of AT is $3.90 indicating that the stock price has appreciated $0.65 per share or 20 percent. Several companies have recently upgraded AT to outperform and market perform. Therefore I am going to continue to hold AT in this portfolio for the next 6 months.

IRET or Investors Real Estate Trust pays $0.13 per quarter and has paid $0.26 over the past 6 months. The stock is now selling for $8.75 offering a $0.15 gain. Since this REIT pays nearly 6%, I am going to keep it in the portfolio till the end of the year.

CYS or CYS Investments pays $0.32 quarterly and has paid $0.64 since January. It is now selling for $8.75 per share tendering a $1.00 capital gain so far this year. With an 11% increase in the selling price of the stock over the past 6 months, it is difficult to make a decision on whether to hold or sell this security. There are conflicting opinions on whether to hold or sell this stock among various rating agencies. The Street has sell, Credit Suisse is neutral and Ford Equity maintains a hold. Reluctantly, I'm going to sell this security and replace it even though it pays a good dividend.

BOMK or Bank of McKenney pays its dividend annually or one time a year in December. Therefore this stock has not paid any dividends over the past 6 months. The price of the stock has gone down from $8.75 to $8.30 per share. The issue has lost $0.45 in value over the past 6 months or dropped about 5%. It is time to sell this security and move on to a stock offering better returns.

VOC or VOC Energy Trust paid $0.57 in February and $0.52 in May totaling $1.09 so far this year. The trust currently sells for $16.60 per unit which is a $0.75 increase over the past 6 months or about a 5% rise. This issue is rated a buy with several rating agencies so I will let this trust remain in the portfolio until the end of the year.

AP or Ampco-Pittsburgh Corp pays $0.18 quarterly which amounts to $0.36 so far this year. The stock has risen to $21.75 from $18.15 which amounts to a $3.60 increase from January or about a 20% increase. Since the company still pays over 3% at this price and it appears to be generating more sales and profits, I will keep this stock in the portfolio.

CTY or Qwest Corp 6.125% Notes has paid $0.76 over the past 6 months. This preferred stock has risen to $23.40 per share from $20.55. This $2.85 increase in price represents a 13% rise in the stock price. I will keep this stock in the portfolio since it will continue to pay the $0.38 dividend each quarter.

Finally there is PSEC or Prospect Capital Corp which has continued to pay $0.11 monthly or $0.66 over the past six months. PSEC is selling for $0.78 less than it sold for in January which represents a 7% loss. PSEC has been under a cloud lately because of some questions regarding its accounting. News reports indicate that the cloud is lifting so I'm going to continue to keep this stock in the portfolio.

Below is a table consolidating the returns from portfolio at the end of 6 months:

No. of Shares

Symbol

Company

Dividends

Received

Capital Gain or (Loss)

Total Gain or (Loss)

200

AT

Atlantic Power Corp

$36.00

$130.00

$166.00

100

IRET

Investors Real Estate Trust

$26.00

$15.00

$41.00

100

CYS

CYS Investments

$64.00

$100.00

$164.00

100

OTCQB:BOMK

Bank of McKenney

$0.00

($45.00)

($45.00)

100

VOC

VOC Energy Trust

$109.00

$75.00

$184.00

100

AP

Ampco-Pittsburgh Corp

$36.00

$360.00

$396.00

100

CTY

Qwest Corp 6.125% Notes

$76.00

$285.00

$361.00

100

PSEC

Prospect Capital Corp

$66.00

($78.00)

($12.00)

Totals

$413.00

$842.00

$1255.00

The consolidated table shows a net gain with dividend and capital gains added together of $1255.00. The best offer I could find on a 1-year $10,000.00 CD was 1.1% which would have earned $55.00 during the 6 month period. The $10,000.00 portfolio of stocks outperformed a CD by $1200.00. The plan is to follow up again after another 6 months to total the performance difference during the whole year.

Stocks to Replace those sold

Since CYS and BOMK are sold, I have $875.00 + $830.00 or a total of $1,705.00 to reinvest. I will add 100 shares of CTCM at $10.65 and 100 shares of DSU at $4.04. Here is what the portfolio looks like for the next 6 months. I wrote an article on CTCM which you can find here. DSU is a high-yield leveraged CEF that invests in debt instruments including business loans and preferred stocks. It also uses derivatives to increase income. With a low expense ratio combined with a price that fills the balance available, it satisfies the bill to complete the portfolio.

No. of Shares

Symbol

Company

Dividend

Stock Price at purchase

P/E

200

AT

Atlantic Power Corp

$0.37

$3.25

Loss

100

IRET

Investors Real Estate Trust

$0.52

$8.60

54

100

CYS

CYS Investments

Sold

July 2014

100

OTCQB:BOMK

Bank of McKenney

Sold

July 2014

100

VOC

VOC Energy Trust

$2.28

$15.85

10

100

AP

Ampco-Pittsburgh Corp

$0.72

$18.15

11

100

CTY

Qwest Corp 6.125% Notes

$1.53

$20.55

100

PSEC

Prospect Capital Corp

$1.33

$11.35

10

100

CTCM

CTC Media Inc

$0.70

$10.62

11

100

DSU

Blackrock Debt Strat. Fd.

$0.30

$4.03

9

Conclusion

The first 6 months of this experiment shows that a carefully diversified portfolio can easily outperform a bank CD by a wide margin. The only eventuality that would change the outcome of this comparison would be a huge downdraft of the stock market or the complete destruction of value in one of the stocks listed above. People who invest in CDs are actually losing purchasing power since the inflation rate is around 2% which is 1% higher than the return. The current economic environment has made it very important that people carefully choose where they put their investments to keep up and/or do better than inflation.

Afterthought

After reading Chuck Carnevale's review of the Dow last week, I thought I'd like to take several Dow stocks and perform this same income test for a year. In the near future I plan to do a similar test using Dow component stocks chosen from Chuck's review to compare how they will perform against a 1-year CD. It would also be interesting to compare outcomes between portfolios - the portfolio above as opposed to a portfolio composed of these Dow components.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: 6-Month Review: Comparison Of $10,000.00 CD To A $10,000.00 Dividend Portfolio