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, this strategy takes a small number of historically relevant ideas, to create a simple, yet powerful action plan for the individual investor. As I have 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.
This portfolio attempts to capture the best high yield, low payout stocks with a history of raising dividends. There are numerous ways to gauge the "best" high yield/low payout stocks. The list 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 May I transitioned to a slightly different ranking methodology. The Dividend Champions are still the starting point and we still begin by ranking the top third highest yielding champions. With the remaining high yielding stocks, we will eliminate 50% with the highest payout ratio. The remaining stocks are assigned a rank based on the ratio of their dividend yield to payout ratio. The top 10 stocks based on this ratio 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 12 (to limit turnover) and are replaced with the next highest rated stock.
Tompkins is a regional bank which currently yields 3.56% with a payout ratio of 42.56%. It actually finished last week up 1.07%, a reassuring sign for investors who saw nearly all stocks suffer losses last week. The stock is a low volatility financial that could potentially weather a volatile stock market more adeptly than some other financials.
Below are the top 12 Dividend Champions using the ranking methodology detailed above:
|Community Trust Banc.||CTBI||4.57||52.99||0.086|
|Tompkins Financial Corp.||TMP||3.56||45.71||0.078|
|RPM International Inc.||RPM||3.98||57.93||0.069|
|WGL Holdings Inc.||WGL||3.99||61.75||0.065|
|Johnson & Johnson||JNJ||3.52||54.55||0.065|
|MGE Energy Inc.||MGEE||3.65||56.62||0.065|
Disclaimer: No current positions in stocks mentioned. Please note that Scott's Investments is not a financial adviser. Please consult your own investment adviser before making any investment decisions.