High Yield Dividend Champion Portfolio (New System!)

In December 2010, I created a screen/hypothetical portfolio called the “High Yield Dividend Champion Portfolio.” The screen is tracked publicly as a continuous hypothetical portfolio with a starting balance of $100,000 on Scott’s Investments (see the right hand column for a link to the spreadsheet).

Like many of the screens, strategies, and portfolios I track and prefer, the High Yield Dividend Champion Portfolio uses a small number of historically relevant ideas to create a simple, yet powerful investment plan. As I previously detailed, “Some studies have shown that the, highest yielding, low payout stocks perform better over time than stocks with higher payouts and lower yields.”

The High Yield Dividend Champion Portfolio attempts to capture the best high yield, low payout stocks with a history of raising dividends. There are numerous ways to gauge the “best” high yield/low payout stocks. The screening process for this portfolio starts with the “Dividend Champions” as compiled by DRIP Investing. The list is comprised of stocks that have increased their dividend payout for at least 25 consecutive years.

I am excited to announce some changes to the High Yield Dividend Champion ranking system going forward. The changes are not due to poor performance – the strategy returned over 40% in the past two years:

We still begin with the Dividend Champion list. The  list is first sorted by yield and the lowest 50% yielding stocks are eliminated.

The remaining stocks are then assigned a rank based on their yield (the higher the yield the higher the rank), payout ratio (the lower the payout ratio the higher the rank), 3 year dividend growth rate, and 5/10 year Dividend Acceleration/Deceleration (5-year average increase divided by 10-year average increase).  The objective of the new ranking system is to capture stocks with accelerating dividend growth while still focusing on high yield and low payout ratios. The screen produces many of the same names as the original system but may help reduce turnover going forward. With the old ranking system, some stocks frequently fluctuated on the margin as qualifiers and non-qualifiers, increasing turnover.

The top 10 stocks based on the new ranking system make the portfolio. Stocks will be sold at the re-balance date (generally around the 5th of the month) when they drop out of the top 15 (to limit turnover) and are replaced with the next highest rated stock.

After running the new ranking system there is turnover in three positions for this month. Eagle Financial Services (EFSI) was sold for a gain over 25%, McDonalds (MCD) for a gain over 2%, and Mercury General (MCY) for a loss over 4.5% . Individual security returns exclude commissions.

Proceeds were used to purchase Genuine Parts (GPC), Walgreen (WAG) and Questar (STR).

The top 15 stocks based on the new ranking methodology are below and displayed in order of their ranking:

Name Symbol Trend Yield Payout 5 10 A/D* 3-yr DGR %
Chevron Corp. CVX Here 3.33 29.53 0.956 9.70
Universal Health Realty Trust UHT Here 4.9 40.46 0.54 1.10
WGL Holdings Inc. WGL Here 4.08 59.04 1.347 2.90
Universal Corp. UVV Here 4.01 36.63 0.585 2.10
Diebold Inc. DBD Here 3.72 42.86 0.7 3.10
Genuine Parts Co. GPC Here 3.11 49.75 1.17 6.80
Walgreen Company WAG Here 2.97 49.33 1.119 26.00
Questar Corp. STR Here 3.44 58.12 1.035 9.60
American States Water AWR Here 2.96 53.58 1.528 7.90
California Water Service CWT Here 3.43 57.8 1.407 2.20
Community Trust Banc. CTBI Here 3.84 44.06 0.41 1.20
Air Products & Chem. APD Here 3.05 55.05 0.937 11.80
Tompkins Financial Corp. TMP Here 3.83 60.08 0.843 5.70
1st Source Corp. SRCE Here 3.08 34.52 0.46 3.80
Altria Group Inc. MO Here 5.6 91.67 1.251 8.70
‘*A/D=Acceleration/Deceleration (5-year average increase divided by 10-year average increase)

All returns exclude commissions and taxes and are hypothetical. Real results will differ

14 thoughts on “High Yield Dividend Champion Portfolio (New System!)”

  1. Scott,

    Thanks for the ongoing ideas and education.
    I attempted to replicate your new ranking system on the Dividend Champions – without complete success.
    I assume you just sum the individual ranks for the 4 parameters? Most of my picks agree with yours but not in the same order, however, some are off completely.
    Example: How can UHT come second in the rankings with such a low A/D and such a low DGR3? I have UHT ranked at 26, not ranked at 2.

    Am I making an error?


  2. I’m just guessing that the results might be better if you switched out of a stock when ever if fell back 10%.

    1. I have via P123, but it is not identical to the strategy. Similar drawdown to equity indexes

  3. Scott–have you ever evaluated the hi yield stocks on a momentum basis? For example, taking the stocks that are ranked as you do, and then ranking them on 6 mo momentum?

    1. Yes, I have done something similar in the past although not with the Dividend Champions. Search High Yield Momentum on my site and should be able to find a system I previously tracked.

  4. Hi, Scott.

    Thanks so much for all of your efforts! I am nearing retirement, and would love to follow a strategy similar to this for income, but I am a little uncomfortable with the idea of only holding 10 stocks. I would also like to limit the turnover even farther.

    Would you consider expanding the spreadsheet so that it shows the top 25 stocks instead of only the top 10? That way, those of us who would like to own more stocks or would like to hold them longer would be able to see which ones made the list.

    Steve W
    Frisco, TX

    1. Hi Steve, I could probably list the top 20 or 25 with each monthly update; however, in terms of live tracking the portfolio I will keep the top 10 in the portfolio.

  5. Hi Scott: Sorry to ask such a basic question, but your spreadsheet lists current allocations and current positions. I’m not sure how they differ.


    1. Current allocation is the value of the position / total portfolio value. It is simply a data point, not a suggestion or target.

  6. Hi Scott
    thanks for your work
    what do you mean by :
    “I weighted dividend yield and payout heavier than dividend growth and A/D”


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