A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013

In February 2012, I wrote about research that showed that high-yield, low-payout stocks outperformed the overall market in total return, as well as other yield-payout groups. I created the DG-HYLP model portfolio based on this research, and last rebalanced it in July 2012. Mathematically, the combination of high yield and low payout ratio identifies stocks with a low price-to-earnings [PE] ratio, which could be an indicator of value. Furthermore, the low payout ratio means there is room for the firm to increase its dividend. The use of the dividend growth rate [DGR] in the ranking system favors firms that don't just have the capacity to increase the dividend, but actually do raise it. These should be favorable characteristics for the stocks in this portfolio, in addition to the higher yield. Over the last year, the DG-HYLP underperformed my other DG model portfolios. The portfolio had some rather volatile... Read more