Frontier Communications Corp (FTR), Annaly Capital (NLY): The World’s Best Dividend Portfolio

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Should You Buy This 8.5% Yielding Stock?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 $39.71 25.0818 4.3% $1,137.96 14.3%
Exelon $41.36 28.818 6.5% $936.01 (21.5%)
National Grid $48.90 20.3693 5.7% $1,139.87 14.4%
Philip Morris International Inc. (NYSE:PM) $68.49 14.5429 3.8% $1,327.91 33.3%
Ryman Hospitality $44.93 24.7 4.4% $1,131.26 1.9%
Plum Creek Timber $38.42 26 3.4% $1,296.88 29.8%
Brookfield Infrastructure Partners $26.12 38.2825 4.6% $1,470.05 47%
Vodafone Group Plc (ADR) (NASDAQ:VOD) $26.75 56.7566 5.6% $1,577.83 3.9%
Seaspan $15.24 95 6.5% $1,904.75 31.6%
AT&T $35.20 28.4 4.9% $1,046.82 4.7%
Retail Opportunity Investments $12.20 81.95 4.6% $1,080.10 8%
Annaly Preferred C $25.98 38.5 7.5% $980.21 (1.8%)
Cash $231.79
Dividends Receivable $59.74
Original Investment $12,983.97
Total Portfolio $15,321.19 18%
Investment in SPY (Including Dividends) 20.2%
Relative Performance (Percentage Points) (2.2)

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

The portfolio is up 18% since we began this experiment, and we’re trailing the S&P by 2.2 percentage points. We lost about 0.5 percentage points on the S&P from last week as the index raced out to a 2.2 percentage point lead. That’s what we expect — slight underperformance in a rising market and outperformance in poor markets. So far this year, the S&P has been on fire, but that won’t continue forever. We have a load of cash in our pocket and more on the way, plus after a couple of buys and sells, the portfolio yields a very healthy 5.2%.

As I discussed last week, I sold the stake in Frontier Communications Corp (NASDAQ:FTR) for $4.13 per share and rolled those funds into Vodafone at $27.19. Frontier Communications Corp (NASDAQ:FTR) continues to experience shrinking free cash flow, and while the dividend should be covered amply for 2013, cash flow just continues to shrivel. In contrast, Vodafone owns a very attractive asset in its 45% stake in Verizon (NYSE:VZ) Wireless and has survived Verizon Communications Inc. (NYSE:VZ)‘s attempt to force Vodafone out of its stake. The market is pricing Vodafone at only a little above what its stake could fetch from Verizon, and there’s a lot of speculation that this might finally be the year that Verizon, because of dwindling cash flow and the need to cover its own dividend, will make a bid on the wireless unit. But one fund manager thinks Vodafone would be insane to sell out. Stay tuned.

In addition, I sold my stake in Annaly Capital Management, Inc. (NYSE:NLY) for $15.32 per share and rolled those funds into a new stake in Ryman Hospitality Properties at $44.93. Ryman is very attractively placed and should do well over the coming year. It yields 4.4% now — well above its lodging peers — yet is valued below most of them. It owns some of the best convention hotels in the U.S. and is well positioned. I strongly encourage you to read my details on the company here.

Unfortunately, I wasn’t able to switch my stake in Annaly Capital (NYSE:NLY) Series to Annaly Capital (NYSE:NLY) Series D, since the spread closed too quickly. I’ll keep an eye on those two and switch the stake when a $0.40 differential looks possible. While the dividend on Annaly Capital (NYSE:NLY)’s common stock continues to crumble, all those dividends would have to be wiped out before dividends on the preferreds would be cut.

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