The World’s Best Dividend Portfolio: The Southern Company (SO), Exelon Corporation (EXC), National Grid plc (ADR) (NGG)

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
The Southern Company (NYSE:SO) $39.71 25.0818 4.3% $1,138.46 14.3%
Exelon Corporation (NYSE:EXC) $41.36 28.818 6.6% $916.99 (23.1%)
National Grid plc (ADR) (NYSE:NGG) $48.90 20.3693 5.7% $1,123.98 12.8%
Philip Morris International $68.49 14.5429 3.7% $1,335.18 34%
Annaly Capital $17.79 72.5 13.4% $1,109.98 (13.9%)
Frontier Communications (NASDAQ:FTR) $7.88 126.4243 9.9% $517.08 (48.1%)
Plum Creek Timber $38.42 26 3.4% $1,274.52 27.6%
Brookfield Infrastructure Partners $26.12 38.2825 4.4% $1,491.87 49.2%
Vodafone (NASDAQ:VOD) $26.52 37.5566 6% $1,012.90 1.7%
Seaspan (NYSE:SSW) $15.24 95 0.8% $1,900.00 31.3%
AT&T $35.20 28.4 5% $1,033.48 3.4%
Retail Opportunity Investments $12.20 81.95 4.5% $1,071.09 7.1%
Annaly Preferred C $25.98 38.5 7.5% $980.60 (1.7%)
Cash $234.66
Dividends Receivable $47.45
Original Investment $12,983.97
Total Portfolio $15,188.22 17%
Investment in SPY (Including Dividends) 18.7%
Relative Performance (Percentage Points) (1.7)

Source: Capital IQ, a division of Standard & Poor’s.

The portfolio is up 17%, since we began this experiment, and we’re trailing the S&P by 1.7 percentage points. That might not be surprising given the massive run the market’s been on over the past few months. Remember, we expect to outperform in down markets and underperform in up markets. We have a load of new cash in our pocket, which we could deploy soon, and several other significant portfolio changes to make.

Exelon Corporation (NYSE:EXC)I’m selling my stake in Frontier. The company continues to see shrinking free cash flow — now projected at $875 million (midpoint) for 2013. While that solidly covers the dividend, free cash flow just continues to shrink. I’ll be rolling over those proceeds into Vodafone. The rumors continue to swirl that Verizon wants Vodafone’s 45% stake in their joint venture, Verizon Wireless. Estimates I’ve seen of the value of that stake equal nearly all of Vodafone’s market cap today. And with a means to effect a tax-free transaction, that value could be realized this year. Meanwhile, Vodafone offers a smaller, though by no means small, dividend that is much more likely to stick around longer term.

Second, I’m selling my stake in Annaly and moving the funds to Ryman Hospitality Properties (NYSE:RHP) . You can read the lowdown on Ryman here, but the short story is that the company just converted to a REIT a couple of months ago and is now paying a 4.5% yield. There are other significant catalysts that could drive the stock higher besides. Make sure to check out the article.

Finally, I’m switching my stake in Annaly Series C to Annaly Series D as long as the price disparity of about $0.40 holds. With preferred stock, I like to shift around from series to series in the same company if one comparable security gets out of line relative to the other. And that $0.40 is equal to nearly a whole quarter’s dividends as well. In Annaly’s recent quarter, book value slipped from $16.60 to $15.85 — a 4.5% decline — and the stock now trades at 0.97 times book. So I’m not inclined to wait around on the common stock any longer, but I do remain interested in the preferreds, which would have to see a complete erosion in the common’s dividend before losing their payouts.

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

Earnings news:

Seaspan performed as expected this quarter, growing cash available for distribution. It’s continuing to expand its fleet size and bumped its dividend up by 25%, to a yield of $1.25. I expect the stock to trade around $20 for the near future. If it declines much below that, I’ll be inclined to pick up more.

Dividend news:

Frontier went ex-dividend on March 6 and pays out $0.10 per share on March 28.
Brookfield Infrastructure went ex-dividend on Feb. 26 and pays out $0.43 per share on March 29.
Annaly Series C went ex-dividend on Feb. 27 and pays out almost $0.48 per share on April 1.

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 probably have stocks plunging again. If they do, I’ll be inclined to pick more shares up.

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, Ph.D.

Jim Royal, Ph.D., owns shares of the 13 portfolio stocks mentioned in the table. The Motley Fool recommends Seaspan and Vodafone and owns shares of Annaly Capital Management (NYSE:NLY) and Seaspan.

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

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