High Yield Momentum Stock Portfolio, May Update

Once per month I update a high yield dividend stock momentum portfolio on Scott's Investments.  The portfolio is comprised of the high yielding stocks in the S&P 500 with high price momentum.

The portfolio is a simple quantitative strategy and begins by screening the S&P 500 for stocks yielding greater than 4%. The results are then ranked by their 6 month returns.  The top stocks are then added to a hypothetical portfolio and tracked publicly on Scott's Investments.  This month there were 59 results this month, two more than last month.

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Per a previous article, the highest momentum, high-yield stocks have historically out-performed 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.  Currently this rule applies to Philip Morris (PM) and Kimco Realty (KIM), 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.

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The portfolio has turnover in two positions for May. H&R Block (HRB) and Lockheed Martin (LMT) are being sold and the proceeds used to purchase Altria (MO) and AT&T (T).  MO currently yields 5.16% and its 6-month performance of 20.23% ranks it fifth on the screen. T yields 5.24% and has a 6-month performance of 19.58%, the sixth highest momentum rank.

The High Yield Momentum Portfolio was designed to be fully invested at all times regardless of market conditions. However, as part of a larger portfolio there may be additional steps an investor can take to reduce risk and diversify strategies.  For example, the Ivy Portfolio uses a 10 month moving average to dictate an invested or cash position (signals are updated daily at Scott's Investments).

Below are the top 15 high yield momentum stocks as of May 11th.  Keep in mind that only 10 stocks are held in the portfolio, the current holdings are italicized (the 2 new additions in bold) and the current holdings can be viewed on the right-hand side of Scott's Investments and in the second table below.

Since inception the portfolio is up 9.58%, down just under 1% versus last month's update. Returns exclude commissions, taxes, and are hypothetical:

Data source: Finviz.

Ticker Company Dividend Yield Trend Performance (Half Year)
CINF Cincinnati Financial Corp. 4.46% Here 30.63%
FII Federated Investors, Inc. 4.49% Here 25.00%
GCI Gannett Co., Inc. 5.98% Here 23.68%
LO Lorillard, Inc. 4.81% Here 23.18%
MO Altria Group Inc. 5.16% Here 20.23%
T AT&T, Inc. 5.24% Here 19.58%
HCBK Hudson City Bancorp, Inc. 4.95% Here 18.28%
HCN Health Care REIT, Inc. 5.26% Here 16.23%
MRK Merck & Co. Inc. 4.42% Here 15.17%
VTR Ventas, Inc. 4.21% Here 15.06%
VZ Verizon Communications Inc. 4.86% Here 14.52%
CMS CMS Energy Corp. 4.20% Here 13.92%
SCG SCANA Corp. 4.26% Here 13.90%
LMT Lockheed Martin Corporation 4.69% Here 13.45%
HCP HCP, Inc. 4.83% Here 13.19%

 

Position Purchase Price Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends Current Yield
MO 31.79 05/11/12 $9,918.48 $9,918.48 0.00% 5.16%
GCI 14.55 03/12/12 $11,058.00 $10,161.20 -8.11% 5.98%
CINF 34.45 02/10/12 $10,748.40 $11,256.96 4.73% 4.46%
MRK 37.91 02/10/12 $10,728.53 $10,762.49 0.32% 4.42%
FII 20.89 03/12/12 $11,050.81 $11,320.60 2.44% 4.49%
T 33.59 05/11/12 $9,909.05 $9,909.05 0.00% 5.24%
PM 75.58 12/09/11 $10,581.20 $12,061.00 13.99% 3.58%
KIM 17.79 04/10/12 $11,172.12 $12,315.08 10.23% 3.88%
HCBK 6.73 03/12/12 $11,064.12 $10,636.68 -3.86% 4.95%
LO 122.58 02/10/12 $10,664.46 $11,203.86 5.06% 4.81%


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