January High-Yield Momentum Portfolio Update

by: Scott's Investments

Once per month I update a high-yield dividend stock momentum portfolio on Scott's Investments. The portfolio comprises 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 53 results versus 52 results 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 outperformed 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 Bristol-Myers Squibb (NYSE:BMY) and Philip Morris (NYSE:PM), current portfolio holdings yielding less than 4%. They remain in the portfolio this month because its momentum would otherwise put it in the top 10.

For January 10, the portfolio has no turnover. As in previous months utilities continue to dominate the portfolio, despite some relative weakness for the sector this January.

Below are the top 15 high-yield momentum stocks as of January 10. 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. I will be providing some performance statistics for this portfolio in coming days/weeks.

Ticker Company Industry Dividend Yield Payout Ratio Performance (Half Year)
SCG SCANA Corp. Diversified Utilities 4.38% 64.60% 15.61%
DUK Duke Energy Corporation Electric Utilities 4.66% 71.75% 15.31%
NI NiSource Inc. Diversified Utilities 4.04% 101.79% 15.27%
PGN Progress Energy Inc. Electric Utilities 4.55% 93.73% 14.82%
AEE Ameren Corporation Diversified Utilities 4.96% 68.07% 14.75%
SO Southern Company Electric Utilities 4.22% 75.53% 13.65%
RAI Reynolds American Inc. Cigarettes 5.44% 90.96% 13.30%
CINF Cincinnati Financial Corp. Property & Casualty Insurance 5.14% 164.15% 13.23%
ED Consolidated Edison Inc. Diversified Utilities 4.04% 64.01%


HCP HCP, Inc. REIT - Healthcare Facilities 4.67% 125.82% 12.14%
PFE Pfizer Inc. Drug Manufacturers - Major 4.01% 60.54% 12.05%
AEP American Electric Power Co., Inc. Electric Utilities 4.56% 56.24% 10.82%
MRK Merck & Co. Inc. Drug Manufacturers - Major 4.36% 103.19% 10.72%
MO Altria Group Inc. Cigarettes 5.67% 93.12% 10.64%
LLY Eli Lilly & Co. Drug Manufacturers - Major 4.86% 48.65% 10.55%

Data source: Finviz.

Disclosure: No current positions in stocks mentioned.

Disclaimer: Please note that Scott's Investments and its author 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.