The World’s Best Dividend Portfolio: The Southern Company (SO), Annaly Capital Management, Inc. (NLY) and More

In June 2011 I invested my money equally in a selection of 10 high-yield dividend stocks. With a year of success behind me, in July 2012, I added even more money to the portfolio. Those names offer triple the yield of the average S&P 500 stock. You can read all the details here. Now let’s check out the results so far.

Company Cost Basis Shares Yield Total Value Return
Southern (NYSE:SO) $39.71 25.0818 4.4% $1,109.37 11.4%
Exelon (NYSE:EXC) $41.36 28.818 6.7% $906.04 (24%)
National Grid (NYSE:NGG) $48.90 20.3693 5.7% $1,118.68 12.3%
Philip Morris International (NYSE:PM) $68.49 14.5429 3.9% $1,282.10 28.7%
Annaly Capital (NYSE:NLY) $17.79 72.5 12% $1,078.08 (16.4%)
Frontier Communications
(NASDAQ:FTR)
$7.88 126.4243 8.9% $577.76 (42%)
Plum Creek Timber (NYSE:PCL) $38.42 26 3.5% $1,252.68 25.4%
Brookfield Infrastructure Partners  (NYSE:BIP) $26.12 38.2825 4% $1,429.47 43%
Vodafone (NASDAQ:VOD) $26.52 37.5566 6% $1,026.05 3%
Seaspan (NYSE:SSW) $15.24 95 5.4% $1,780.30 23%
AT&T Inc. (NYSE:T) $35.20 28.4 5.2% $988.04 (1.2%)
Retail Opportunity Investments(NASDAQ:ROIC) $12.20 81.95 4.3% $1,069.45 7%
Annaly Preferred C $25.98 38.5 7.6% $972.13 (2.8%)
Cash $159.27
Dividends Receivable $31.78
Original Investment $12,983.97
Total Portfolio $14,781.18 13.8%
Investment in SPY(including dividends) 14.8%
Relative Performance(percentage points) (1.0)

Source: S&P Capital IQ.

The portfolio is up 13.8%, up a very solid 0.9 percentage points from last week. The S&P went up, too, but not quite as much, so we moved up relatively, from 1.7 percentage points back to 1.0. In a couple of weeks, we’ll have the next wave of dividends rolling into the portfolio, which should help us do well.

The Southern Company (NYSE:SO)

The portfolio is now yielding 5.7% — about three times the S&P – and we have nearly $160 in cash in the account and about $32 more on the way within the month. With more than $100 in cash, that means it’s time to reinvest. I’ll continue to ponder where those funds should go.

Annaly announced that it was buying the nearly 88% of Crexus Investment Corp (NYSE:CXS) that it doesn’t own for $13 per share, or $872 million in total. The purchase marks Annaly’s push to invest directly in commercial real estate, and is part of the company’s broader move away from its traditional stronghold in agency-backed mortgages. Those mortgages are considered safe assets because they’re backed by the U.S. government, but the narrowing interest rate spread there has hurt Annaly’s profitability.

National Grid came out with a “positive outlook” for its business with expectations of “good operating and financial performance.” Unfortunately, the company provided no direction on how much its dividend might grow, and none should be forthcoming until the company’s full-year financials are revealed in May. Where the dividend goes depends on how negotiations with its regulator proceed, as fellow Fool Maynard Paton explains in this article.

Dividends and earnings announcements
Here is the recent news on earnings and dividends:

Earnings news:

1). Plum Creek’s earnings surprised investors, who pushed the stock up following its fourth-quarter results. The timber company saw earnings increase 30% year over year, to $0.49 per share, surpassing its own estimate of $0.25 to $0.30. Revenue was up 12%. The strong results were attributed to the recovering residential construction market. For 2013, it expects profits of $1.25 to $1.50 per share, and I think this is one of the more conservative ways to play the return of housing.

2). Southern reported quarterly earnings that grew 47% from last year, driven largely by cost-cutting. Fourth-quarter net income came to $0.44 per share, or $383 million, good enough to surprise analysts, who had expected $0.40. The driving force: Southern cut operating expenses by $218 million from the year-ago quarter. Here’s how it performed in graphical format.

Dividend news:

1). Vodafone went ex-dividend on Nov. 20 and pays out $0.519 per share on Feb. 6.

2). Annaly went ex-dividend on Dec. 26 and paid out $0.45 per share on Jan. 29.

3). AT&T went ex-dividend on Jan. 8 and paid out $0.45 per share on Feb. 1.

4). Southern went ex-dividend on Jan. 31 and pays out $0.49 per share on March 6.

All that, of course, means more money coming into our pockets.

It’s fun to sit back and get paid, and with the market volatility, we might have a good chance to reinvest those dividends at good prices. Europe continues to be an absolute mess, and continued bad news will likely have stocks plunging again —  and if they do, I’ll be inclined to pick up more shares.

Foolish bottom line
I’ve been a fan of big dividends for a while, and I think this portfolio will outperform the market over time through the power of dividends. As I promised in the original article, I’ll continue to track and report on the portfolio’s progress, including news on these companies.

The article The World’s Best Dividend Portfolio originally appeared on Fool.com and is written by Jim Royal.

Jim Royal, Ph.D., owns shares of the 13 portfolio stocks mentioned in the table and Seaspan May 2013 calls and is short May 2013 puts. The Motley Fool owns shares of Seaspan, Brookfield Infrastructure, ROIC, and Annaly. Motley Fool newsletter services have recommended buying shares of Vodafone, ROIC, National Grid, Brookfield Infrastructure, Exelon, Annaly, and Southern. Motley Fool newsletter services have recommended creating a write covered straddle position in Exelon and a covered straddle position in Seaspan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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