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Show Vs Grow Part 2: High Yield Vs Dividend Growth; An Experiment To Determine Which Approach Is Best

In part 1 of my series on high yield vs dividend growth I presented a portfolio of 25 dividend growth stocks that represented the best of the best when it comes to dividend growth champions. Each one of them was a dividend achiever, meaning they had grown dividends 10+ consecutive years. In addition they had grown their dividends an average annual rate of 22% over an average period of 23 years and over 17% over the last 5 years. Today I am presenting the flip side of the Yield vs Growth debate, the high yield portfolio.

I must point out that putting together a high yielding portfolio that is of similar caliber in terms of quality as the Dividend Growth Portfolio,is much harder. Whereas the starting point for that list of companies is a list of dividend achievers, who by definition have spent years proving they can grow and manage investor's wealth responsibly, a list of highest yielding companies is a completely different beast. By its very nature is full of troubled companies and asset classes that I don't consider suitable for those seeking a stable, consistent, long term, high income portfolio. For example, mortgage Reits are structurally likely to face declining dividends and share prices as interest rates rise. Trusts are predestined to expire at some point, meaning that buy and hold isn't an option, as the trust shares necessarily lose value over time. Similarly a screen of highest yielding funds reveals a world of Closed End Funds, (CEFs) that are littered with managed distribution funds whose managers pay out outrageously high dividends by raiding the investing pool and using destructive Returns of Capital, which results in Net Asset Value, (NYSE:NAV) or the portfolio of investment assets, that steadily declines over time, dragging the dividend and share price down with it.

 

Typically when it comes to very high yield, slow growing dividend portfolios there are certain classes that fit the bill. Master Limited Partnerships, (MLPs) that typically consist of energy related companies, with steady cash flows that are for tax reasons, required to pay out over 90% of their income as distributions. Similarly Business Development Corporations, (BDCs) and Real Estate Investment Trusts, (REITs) operate under similar tax rules and many of these companies are very well managed and their dividends and distributions are safe long term. Finally, certain Closed End Funds, that have spare undistributed net interest income, (UNII) per share, (to support and grow stable dividends) and don't use Return of Capital can make good investments as well and offer the chance to invest in more exotic ways, such as with leveraged offerings, bond portfolios and even Collateralized Loan Obligations, (CLOs).

Certain sectors support strong dividends, usually steady, long contract industrial stocks such as oil drillers and shipping companies, firms with contracts that can stretch up to 25 years that have very predictable cash flows.

What follows is a portfolio of what I believe to be a portfolio of high quality, well run, high yielding companies whose management has proven they are committed to sustainable and slowly growing shareholder income and who have the skills to survive ebbs and flows in the economic cycle. Rather than just go for the highest possible sustainable yield, I have used some discretion to select companies to increase diversification and to take advantage of certain macro economic trends.

As in part one I present this portfolio as a countdown, in order of increasing yield. In a series of follow up articles I will go into greater detail about each company and why I think they make good, long term investments in a high income portfolio.

As in part one, I use basic technical indicators to determine whether or not to immediately purchase a stock into my portfolio or whether to place them on a wait list.

35. Retail Opportunity Investments Corp. (NASDAQ:ROIC)

Industry: Commercial REIT

Market Cap: $1.04 Billion

Yield: 4.2%

5 Year Annualized Dividend Growth Rate: 29.93%

Technical Indicator Summary: Buy Now

34. Equity Residential (NYSE:EQR)

Industry: Commercial REIT

Market Cap: $21.08 Billion

Yield: 4.4%

5 Year Annualized Dividend Growth Rate: 6.1%

Technical Indicator Summary: Buy Now

33. Golar LNG Ltd. (NASDAQ:GLNG)

Industry: Specialized Shipping

Market Cap: $2.81 Billion

Yield: 4.5%

5 Year Annualized Dividend Growth Rate: 12.47%

Technical Indicator Summary: Buy Now

32. National Retail Properties, Inc. (NYSE:NNN)

Industry: REIT

Market Cap: $4.34 Billion

Yield: 4.7%

5 Year Annualized Dividend Growth Rate: 1.55%

Technical Indicator Summary: buy now

31. Ventas, Inc. (NYSE:VTR)

Industry: Senior Living REIT

Market Cap: $18.37 Billion

Yield: 4.8%

5 Year Annualized Dividend Growth Rate: 7.2%

Technical Indicator Summary: wait list

31. Brookfield Infrastructure Partners L.P. (NYSE:BIP)

Industry: Infrastructure/Utilities

Market Cap: $5.68 Billion

Yield: 5.2%

5 Year Annualized Dividend Growth Rate: 10.17%

Technical Indicator Summary: Wait List

30. Realty Income Corp. (NYSE:O)

Industry: Retail Reit

Market Cap: $8.08 Billion

Yield: 5.3%

5 Year Annualized Dividend Growth Rate: 5.09%

Technical Indicator Summary: Wait List

29. Seadrill Partners LLC (NYSE:SDLP)

Industry: Offshore oil driller

Market Cap: $1.31 Billion

Yield: 5.6%

1 Year Annualized Dividend Growth Rate: 52.9%

Technical Indicator Summary: buy now

28. W. P. Carey Inc. (NYSE:WPC)

Industry: REIT

Market Cap: $4.3 Billion

Yield: 5.6%

1 Year Annualized Dividend Growth Rate: 14.7%

Technical Indicator Summary: buy now

27. Ensco plc (NYSE:ESV)

Industry: offshore oil driller

Market Cap: $12.26 Billion

Yield: 5.9%

5 Year Annualized Dividend Growth Rate: 97.4%

Technical Indicator Summary: wait list

26. Main Street Capital Corporation (NYSE:MAIN)

Industry: BDC/finance

Market Cap: $1.37 Billion

Yield: 5.9%

5 Year Annualized Dividend Growth Rate: 5.71%

Technical Indicator Summary: Buy Now

25. Digital Realty Trust Inc. (NYSE:DLR)

Industry: Tech REIT

Market Cap: $6.83 Billion

Yield: 6.4%

5 Year Annualized Dividend Growth Rate: 18.77%

Technical Indicator Summary: Wait list

24. Omega Healthcare Investors Inc. (NYSE:OHI)

Industry: Healthcare Reit

Market Cap: $3.85 Billion

Yield: 6.4%

5 Year Annualized Dividend Growth Rate: 10.31%

Technical Indicator Summary: Buy Now

23. Teekay LNG Partners LP. (NYSE:TGP)

Industry: Specialty Shipping

Market Cap: $2.91 Billion

Yield: 6.7%

5 Year Annualized Dividend Growth Rate: 3.96%

Technical Indicator Summary: Wait List

22. Kinder Morgan Energy Partners, L.P. (NYSE:KMP)

Industry: Pipeline MLP

Market Cap: $35.15 Billion

Yield: 6.8%

5 Year Annualized Dividend Growth Rate: 5.31%

Technical Indicator Summary: Buy Now

21. Campus Crest Communities, Inc. (NYSE:CCG)

Industry: REIT

Market Cap: $.534 Billion

Yield: 7.2%

5 Year Annualized Dividend Growth Rate: 1.1%

Technical Indicator Summary: Wait List

20. Williams Partners L.P. (NYSE:WPZ)

Industry: Pipeline MLP

Market Cap: $21.99 Billion

Yield: 7.2%

5 Year Annualized Dividend Growth Rate: 7.06%

Technical Indicator Summary: Wait List

19. Senior Housing Properties Trust (NYSE:SNH)

Industry: Assisted Living REIT

Market Cap: $4.02 Billion

Yield: 7.4%

5 Year Annualized Dividend Growth Rate: 2.19%

Technical Indicator Summary: buy now

18.Triangle Capital Corporation (NYSE:TCAP)

Industry: BDC

Market Cap: $0.802 Billion

Yield: 7.5%

5 Year Annualized Dividend Growth Rate: 6.19%

Technical Indicator Summary: Wait List

17. TCP Capital Corp. (NASDAQ:TCPC)

Industry: BDC

Market Cap: $0.56 Billion

Yield: 7.97%

5 Year Annualized Dividend Growth Rate: 4.68%

Technical Indicator Summary: buy now

16. El Paso Pipeline Partners, L.P. (NYSE:EPB)

Industry: Oil/Gas Pipeline MLP

Market Cap: $6.73 Billion

Yield: 8.2%

5 Year Annualized Dividend Growth Rate: 15.23%

Technical Indicator Summary: Buy Now

15. Vanguard Natural Resources, LLC (NYSE:VNR)

Industry: Oil/Gas Exploration MLP

Market Cap: $2.32 Billion

Yield: 8.3%

5 Year Annualized Dividend Growth Rate: 4.53%

Technical Indicator Summary: Wait List

14. Ares Capital Corporation (NASDAQ:ARCC)

Industry: BDC

Market Cap: $5.2 Billion

Yield: 8.34%

5 Year Annualized Dividend Growth Rate: 0.47%

Technical Indicator Summary: Wait List

13. Ship Finance International Limited (NYSE:SFL)

Industry: Shipping

Market Cap: $1.58 Billion

Yield: 9.3%

5 Year Annualized Dividend Growth Rate: -8.45%

Technical Indicator Summary: buy now

12. Capital Product Partners L.P. (NASDAQ:CPLP)

Industry: Shipping

Market Cap: $.895 Billion

Yield: 9.3%

5 Year Annualized Dividend Growth Rate: -10.1%

Technical Indicator Summary: buy now

11. Breitburn Energy Partners L.P. (BBEP)

Industry: Oil/Gas Producer MLP

Market Cap: $2.04 Billion

Yield: 9.5%

5 Year Annualized Dividend Growth Rate: -1.11%

Technical Indicator Summary: Wait List

10. UBS E-TRACS 2x Long Alerian MLP Infr ETN (NYSEARCA:MLPL)

Industry: Leveraged Oil/Gas Producer MLP

Market Cap: $.221 Billion

Yield: 9.52%

5 Year Annualized Dividend Growth Rate: 16.53%

Technical Indicator Summary: Wait List

9. Calumet Specialty Products Partners LP (NASDAQ:CLMT)

Industry: Oil/Specialty Refiner MLP

Market Cap: $1.92 Billion

Yield: 9.8%

5 Year Annualized Dividend Growth Rate: 8.77%

Technical Indicator Summary: Wait List

8. Navios Maritime Partners L.P. (NYSE:NMM)

Industry: Oil/Gas Producer MLP

Market Cap: $1.27 Billion

Yield: 9.9%

5 Year Annualized Dividend Growth Rate: 2.06%

Technical Indicator Summary: Wait List

7. SeaDrill Limited (NYSE:SDRL)

Industry: Offshore Oil Driller

Market Cap: $16.85 Billion

Yield: 10.3%

5 Year Annualized Dividend Growth Rate: 14.03%

Technical Indicator Summary: Buy Now

6. Memorial Production Partners LP (NASDAQ:MEMP)

Industry: Oil/Gas Production MLP

Market Cap: $1.35 Billion

Yield: 10.4%

5 Year Annualized Dividend Growth Rate: 8.09%

Technical Indicator Summary: Wait List

5. North Atlantic Drilling Limited (NYSE:NADL)

Industry: Specialty Offshore Oil Driller

Market Cap: $2.08 Billion

Yield: 10.44%

5 Year Annualized Dividend Growth Rate: 11.82%

Technical Indicator Summary: buy now

4. Prospect Capital Corporation (NASDAQ:PSEC)

Industry: BDC

Market Cap: $3.5 Billion

Yield: 11.72%

5 Year Annualized Dividend Growth Rate: 3.23%

Technical Indicator Summary: Wait List

3. LRR Energy, L.P. (NYSE:LRE)

Industry: Oil/Gas Producer MLP

Market Cap: $0.4419 Billion

Yield: 11.8%

5 Year Annualized Dividend Growth Rate: 1.79%

Technical Indicator Summary: Buy Now

2. Oxford Lane Capital Corp. (NASDAQ:OXLC)

Industry: CLO CEF

Market Cap: $0.1371 Billion

Yield: 13.45%

5 Year Annualized Dividend Growth Rate: 33.89%

Technical Indicator Summary: Wait List

1. UBS E-TRACS 2x Wells Fargo Bus Dv Cm ETN (NYSEARCA:BDCL)

Industry: Leveraged BDC ETF

Market Cap: $0.1589 Billion

Yield: 13.72%

5 Year Annualized Dividend Growth Rate: 13.5%

Technical Indicator Summary: Buy Now

The overall portfolio has a yield of 8.36% and an average 5 year annualized dividend growth rate of 24.38%. Note that the high growth rate of ESV and SDLP, which are not sustainable growth rates, is what is skewed high.

Compared to the dividend growth portfolio presented in part 1, the yield is 5.5X higher (8.8% vs 1.6%) but the growth rate is 1.39x faster, (17.7% vs 24.57%).

Because I am trying to wait for good prices for each holding, it may take several weeks or even months until each portfolio is complete. In the meantime I will be monitoring all 3 portfolios, (dividend growth, High yield and combination of both) through Morningstar and offering a monthly update as to the performance of each. In addition, I will be writing premium articles covering each of the 50 companies mentioned in parts 1 and 2.

 

Disclosure: I am long PSEC, SDRL.

Additional disclosure: No other positions in any mentioned company