High Yield Dividend Champion Portfolio For October

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 |  Includes: BKH, CTBI, GPC, JNJ, MGEE, RPM, SON, SYY, T, TMP
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 on Scott's Investments (see the right hand column for a link to the spreadsheet).

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.

As I previously detailed in-depth, 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 same as a trailing earnings/price ratio, or the inverse of the trailing P/E ratio). Stocks must also have a positive forward projected P/E, to eliminate stocks with no projected earnings for the next year.

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.

I began tracking the portfolio in December and as of October 5th it is up 8.72%, including dividends. Starting in August, I use closing prices to calculate buy/sells in order to simplify the portfolio tracking process.

For October 5th, the portfolio sold Kimberly-Clark (NYSE:KMB) and using the proceeds to purchase Sonoco Products (NYSE:SON). SON was an initial holding in the portfolio and was originally sold in February 2011.

Sonoco Products provides industrial and consumer packaging products and packaging services. It currently yields 4.11% with a payout ratio of 55.40%. It trades at a price/sales ratio of .64 and a forward p/e of 10.34. The company has a debt/equity ratio of .45 and a quick ratio of 1.08 and current ratio of 1.58. The company has a Turnkey Score of 58.67 (possible range 0 to 100, with 100 being the highest rated stock) according to Turkey Analyst:

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Below is a list of the top 10 stocks in this month's screen. Bear in mind that only the top 10 are purchased or held, and a stock must drop out of the top 12 before being sold:

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Company

Symbol

Yield

Payout

Covered Calls

AT&T Inc.

T

6.03

50.00

Here

Community Trust Banc.

CTBI

5.32

52.99

Here

Tompkins Financial Corp.

TMP

4.02

45.71

Here

RPM International Inc.

RPM

4.49

57.93

Here

Sysco Corp.

SYY

4.02

53.06

Here

Sonoco Products Co.

SON

4.11

58.29

Here

Black Hills Corp.

BKH

4.77

71.22

Here

MGE Energy Inc.

MGEE

3.76

56.68

Here

Genuine Parts Co.

GPC

3.54

53.89

Here

Johnson & Johnson

JNJ

3.58

54.55

Here

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Disclaimer: No current positions in stocks mentioned. Please note that Scott's Investments is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott's Investments.