High Yield Dividend Champion Portfolio For December

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, the High Yield Dividend Champion Portfolio uses a small number of historically relevant ideas to create a simple, yet powerful investment plan. As I 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.”

The High Yield Dividend Champion 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 screening process for this portfolio 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

We first rank the Dividend Champions based on yield – the highest 1/3 yielding stocks are kept and the rest are eliminated. With the remaining high yielding stocks we eliminate the half with the highest payout ratio. The remaining stocks are then 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).

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.

For December 6th there were three changes to the portfolio. The 651 shares in Questar Corp (STR) were sold at a loss of 2.74%, 463 shares in Sonoco Products (SON) at a 5.21% gain, and 356 shares in Sysco Corp. (SYY) for a 1.21% gain.

Three new positions were purchased: Chevron (CVX), Mercury General (MCY), and WGL Holdings (WGL). CVX yields 3.41% with a sub 30% payout ratio, MCY yields 5.89% with a 63% payout ratio and WGL yields 4.10% with a 59% payout ratio.






The top 18 rated stocks based on this portfolio’s criteria are listed below:


The equity curve of the portfolio is plotted below and since inception it is up 35.97%, including dividends but excluding commissions and taxes. The SPDR S&P 500 ETF (SPY) and iShares S&P Growth Allocation ETF (AOR) are also shown for comparison:


A note regarding Eagle Financial Services (EFSI). The stock is a Dividend Champion but trades over the counter and has very low volume. Any entry/exits in this stock should be treated with caution and limit orders are highly recommended.

Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. 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 www.scottsinvestments.com