High Yield Momentum Stock Portfolio for April

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 57 results this month, one less 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.  This rule applies to Philip Morris (PM), a current portfolio holding yielding less than 4%. It remains in the portfolio this month because its momentum would otherwise put it in the top 10.

Click here for MarketClub’s Top 50 Trending Stocks

For April 10th, the portfolio has turnover in just one position, SCANA Corp (SCG). SCG has six month momentum of 12.1% and it is being replaced by Kimco Realty (KIM) which currently yields 4.27% and has 6 month returns of 24.67%.

As I noted just a few days ago in the High Yield Dividend Champion Portfolio update, now may be an appropriate time for caution in equity markets. 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). Michael Dever’s Jackass Investing: Don’t do it. Profit from it also provides several different methods for diversifying strategies and not just asset classes.

Below are the top 15 high yield momentum stocks as of April 10th.  Keep in mind that only 10 stocks are held in the portfolio 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 10.55% and is basically flat versus last month’s update due to the sell-off this week. Returns exclude commissions, taxes, and are hypothetical:

Data source: Finviz.

 

Ticker Company Industry Trend Dividend Yield Performance (Half Year)
GCI Gannett Co., Inc. Publishing – Newspapers Here 5.59% 40.06%
CINF Cincinnati Financial Corp. Property & Casualty Insurance Here 4.87% 28.98%
HCBK Hudson City Bancorp, Inc. Savings & Loans Here 4.78% 26.23%
KIM Kimco Realty Corporation REIT – Retail Here 4.27% 24.67%
MRK Merck & Co. Inc. Drug Manufacturers – Major Here 4.37% 24.47%
HRB H&R Block, Inc. Personal Services Here 4.80% 23.77%
FII Federated Investors, Inc. Asset Management Here 4.60% 22.02%
PFE Pfizer Inc. Drug Manufacturers – Major Here 4.00% 21.67%
LMT Lockheed Martin Corporation Aerospace/Defense Products & Services Here 4.56% 21.38%
CTL CenturyLink, Inc. Telecom Services – Domestic Here 7.65% 20.18%
LO Lorillard, Inc. Cigarettes Here 4.61% 18.85%
PCL Plum Creek Timber Co. Inc. REIT – Industrial Here 4.16% 18.79%
HCN Health Care REIT, Inc. REIT – Healthcare Facilities Here 5.65% 16.76%
MO Altria Group Inc. Cigarettes Here 5.30% 15.96%
PAYX Paychex, Inc. Staffing & Outsourcing Services Here 4.18% 15.37%

Current positions:

Position Shares Purchase Price Purchase Date Cost Basis Current Value Percentage Gain/Loss Excluding Dividends
HRB 640 16.8 02/10/12 $10,752.00 $10,662.40 -0.83%
GCI 760 14.55 03/12/12 $11,058.00 $10,868.00 -1.72%
CINF 312 34.45 02/10/12 $10,748.40 $10,317.84 -4.01%
MRK 283 37.91 02/10/12 $10,728.53 $10,881.35 1.42%
FII 529 20.89 03/12/12 $11,050.81 $11,050.81 0.00%
LMT 122 87.51 02/10/12 $10,676.22 $10,695.74 0.18%
PM 140 75.58 12/09/11 $10,581.20 $12,187.00 15.18%
KIM 628 17.79 04/10/12 $11,172.12 $11,172.12 0.00%
HCBK 1644 6.73 03/12/12 $11,064.12 $10,998.36 -0.59%

 

The equity curve of the portfolio versus SPY (SPDR S&P 500 ETF) is below:

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