February High Yield Momentum Stock Portfolio

by: Scott's Investments

Once per month I update a high yield dividend stock momentum portfolio on Scott’s Investments. The portfolio is comprised of the high yielding stocks in the S&P 500 with high price momentum. I screen the S&P 500 for stocks yielding greater than 4% and then rank the results by 6 month returns. This month there were 52 results this month, the same number as last month. The top stocks are then added to a hypothetical portfolio and tracked publicly on Scott’s Investments.

Per a previous article, the highest momentum, high-yield stocks have historically out-performed lower yielding, lower momentum stocks. The screen is more of a trading strategy and less of a passive income strategy, although the dividends do play an essential component in the overall returns. Thus, turnover could be high and the strategy is not for everyone but I have added a modification to the strategy to minimize turnover.

In order to limit turnover stocks with yields that have fallen below 4% due to share price appreciation will remain in the portfolio. Stocks will only be sold when yield falls below 4% due to dividend cuts or when the six-month performance would otherwise lag the top 10-11 stocks in the screen. This rule applies to Philip Morris (NYSE:PM), a current portfolio holding yielding less than 4%. It remains in the portfolio this month because its momentum would otherwise put it in the top 10.

For February 10th, the portfolio has 6 positions turning over, which is the most since inception on 1/10/11. Last month we had no turnover; the cause of turnover this month is due to a significant shift in momentum away from utilities in the broad market. In previous months utilities dominated the portfolio.

Below are the top 15 high yield momentum stocks as of February 10th. Keep in mind that only 10 stocks are held in the portfolio and the current holdings can be viewed on the right-hand side of Scott’s Investments and in the second table below. Since inception the portfolio is up 9.48%. Returns exclude commissions taxes, and are hypothetical:

Data source: Finviz.

Ticker Company Industry Top Trending Stocks Dividend Yield Performance (Half Year)
CINF Cincinnati Financial Corp. Property & Casualty Insurance Here 4.67% 38.22%
HCP HCP, Inc. REIT – Healthcare Facilities Here 4.83% 30.29%
LMT Lockheed Martin Corporation Aerospace/Defense Products & Services Here 4.57% 30.09%
HCN Health Care REIT, Inc. REIT – Healthcare Facilities Here 5.24% 28.35%
HRB H&R Block, Inc. Personal Services Here 4.76% 25.56%
LO Lorillard, Inc. Cigarettes Here 4.24% 24.78%
MRK Merck & Co. Inc. Drug Manufacturers – Major Here 4.43% 24.46%
SCG SCANA Corp. Electric Utilities Here 4.28% 22.29%
PAYX Paychex, Inc. Staffing & Outsourcing Services Here 4.09% 20.70%
DUK Duke Energy Corporation Electric Utilities Here 4.66% 20.67%
PFE Pfizer Inc. Drug Manufacturers – Major Here 4.18% 20.63%
RAI Reynolds American Inc. Cigarettes Here 5.64% 20.53%
MO Altria Group Inc. Cigarettes Here 5.61% 20.50%
PGN Progress Energy Inc. Electric Utilities Here 4.54% 20.15%
CMS CMS Energy Corp. Electric Utilities Here 4.44% 19.57%

Current Holdings

Position Shares Purchase Price Purchase Date Cost Basis Current Value
HRB 640 16.8 2/10/2012 $10,752.00 $10,752.00
DUK 522 20.75 11/10/2011 $10,831.50 $11,212.56
CINF 312 34.45 2/10/2012 $10,748.40 $10,745.28
MRK 283 37.91 2/10/2012 $10,728.53 $10,728.53
HCN 190 56.45 2/10/2012 $10,725.50 $10,725.50
LMT 122 87.51 2/10/2012 $10,676.22 $10,676.22
PM 140 75.58 12/9/2011 $10,581.20 $11,261.60
SCG 246 42.98 12/9/2011 $10,573.08 $11,146.26
HCP 273 38.81 12/9/2011 $10,595.13 $11,296.74
LO 87 122.58 2/10/2012 $10,664.46 $10,664.46
Cash $275.58
Total $109,484.73