At the end of 2008, I was invited to participate in a passive stock-picking contest between several US and Canadian bloggers. The goal of the competition was to select the four best stock ideas from each blogger. The rules did not allow active buying and selling, which means that once you select your picks, you can’t go back and change them. Check out my original post for the rationale behind my picks.
The companies I selected were representative of four high yielding sectors- real estate, energy transportation, utilities and tobacco. Despite the high yields, the dividend payments seemed sustainable enough even during the financial meltdown. The average yield on the four stocks mentioned below is 6.88%. The riskiest stock of the four seems to be Realty Income (NYSE:O), since real estate is one of the hardest hit sectors in the US. Kinder Morgan (NYSE:KMP) and Con Edison (NYSE:ED) are pretty much utility like investments, while Phillip Morris International (NYSE:PM) should do fine in a crisis, as smokers find it tougher to quit.
- Realty Income (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The monthly dividend company ended 2008 at $23.15 and has distributed $0.85 in dividends so far this year. At the current price of $21.92 the investment is underwater by 1.64%. This dividend achiever, which has consistently increased its distributions several times/year since 1994, currently spots a very attractive 7.90% yield. Check out my analysis of Realty Income.
- Consolidated Edison, Inc. (ED), ended 2008 at $38.93. At the current price of $37.42 plus the $1.18 in dividends collected during the first two quarters the investment in this provider electric, gas, and steam utility services has lost 0.85%. Currently this dividend aristocrat yields 6.30%. Check my analysis of Consolidated Edison.
- Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. One of the largest master limited partnerships in the US has generated a total return of 16.33% in 2009, one third of which came from this dividend achievers generous distributions. The units of this partnership currently yield 8.30%. Check my analysis of Kinder Morgan.
- Philip Morris International Inc (PM) manufactures and sells cigarettes and other tobacco products in markets outside of the United States of America. The largest publicly traded manufacturer and marketer of tobacco products closed 2008 at $43.51/share and has paid $1.08 in dividends in 2009. At the current price of $43.62 the investment is up by 2.74%. This dividend growth stock currently spots an attractive 5.00% yield and recently announced its expectations to return some $9 billion in cash to its shareholders during 2009 in the form of dividends and share buybacks.
Overall my picks gained 0.70% year to date. If you add in dividends, the total return was 4.10%. Check out the performance of the other bloggers' year to date returns in the table below (S&P 500: +3.16%):
- Four Pillars: 48.83%
- Intelligent Speculator: 43.32%
- The Wild Investor: 41.45%
- Where does all my money go: 28.72%
- The Financial Blogger: 13.29%
- Million Dollar Journey: 4.76%
- Dividend Growth Investor: 0.70%
- Zach Stocks: -3.09%
- My Traders Journal: -11.36%
Contests are a tricky thing. Most participants might choose riskier stocks, which could go higher much faster if the market was bullish, versus higher quality issues, which have lower volatility. Thus observing investors making bets without having any funds at risk, is not the same as putting your money where your mouth is.
I would like to emphasize the fact that successful dividend investing is a long-term process. I strongly doubt that a time frame of less than 15 years is indicative of whether the performance of the stock picks above is sustainable or not. Having a diversified portfolio of at least 30 individual companies from several sectors, sizes and locations is essential in order to be diversified and avoid taking unnecessary risks. Check out the Best Dividend Stock for the Long Run list, which is a good addition to today's post.
Full Disclosure: Long PM,O, ED and KMP