I’m back with some more Portfolio Ranks. This time I’m covering the Yield and Yield on Cost (YoC) of my Portfolio holdings. Additionally, I’ll provide rankings of some additional metrics based on Yield & YoC.
I started this ‘ranking’ series back in June. In that inaugural post (simply titled Portfolio Ranks) , I ranked my Portfolio stocks in various categories, including capital investment, reinvested dividends, cost basis, portfolio value and forward dividend income. I mentioned at the end of that post that I’d take a look at Yield and Yield on Cost of my Portfolio holdings, too.
Well, 5 months later, I’m finally getting around to it. In between now and then, I also ranked my Portfolio stocks with respect to dividend safety, so you can check out that post, too.
Anyway, the Yield of my various Portfolio holdings probably won’t be too revealing, as most readers are probably familiar with their respective yields.
Things start to get interesting when we take a look at the Yield on Cost (YoC). Here such factors as additional investment or reinvested dividends, dividend growth and time owned play a part. Unfortunately, YoC doesn’t do a good job of differentiating between high-yield stocks and best performers.
This is where we get to the best part in my mind… when we start looking at the difference between YoC and Yield, and even better, the YoC-to-Yield ratio. I think these metrics can spotlight your best performing stocks – ones that offer a combination of capital appreciation and dividend growth.
So, let’s get to it. Let’s examine the Yield and YoC of my Portfolio stocks, then use those metrics to look at my Portfolio through a performance lens.
By the way, if you would like some background on Yield on Cost (YoC), check out the following link, which explains what the metric is, how it’s calculated and how it might be a useful measure.
https://www.dividend.com/how-to-invest/what-is-yield-on-cost/
Rank by Yield
Note that these rankings are as of November 19th, 2021.
Let’s start by noting that my average Portfolio yield is currently 2.26%. There are 30 of my Portfolio stocks with a yield above that level, and 24 that are below.
18 stocks (1/3 of my Portfolio) have a yield above 3%. Only 13 of my 54 holdings sport a yield above 4%. Thus, I wouldn’t say yield is a prime characteristic of my Portfolio. However, one could argue I’d have more stocks yielding north of 3% and 4% if not for the strong market performance over the past year.
The top-yielding stocks are dominated by the usual suspects: REITs, Utilites, some Healthcare stocks, and a Business Development Company (BDC). Omega Healthcare Investors (OHI) and Altria Group (MO) stand out at the top here… over a couple of percentage points higher than all the other stocks.
At the other end of the Yield rankings, 9 stocks have a yield below 1.5%, and only 4 have a yield south of 1%. My smallest dividend yield (0%) comes from The Walt Disney Co. (DIS) which suspended its dividend at the start of the pandemic.
For my Portfolio, I’d say the sweet spot for yield is in the 1.5% to 3.5% range. 32 stocks currently occupy this range within my Portfolio.
Rank by Yield on Cost (YoC)
My average Portfolio YoC is currently 4.33%. There are 24 of my Portfolio stocks with a YoC above that level, and 30 that are below.
Despite my cost basis climbing due to additional investment, or continually inching upward due to reinvested dividends, the YoC for my Portfolio is well over 4% thanks to years of dividend growth.
OHI also leads my YoC rankings, despite a YoC that’s lower than its current yield. AbbVie (ABBV) has the 2nd best YoC as a result of a good starting yield and some solid dividend growth.
Thanks to my holding period of over two decades for my 5 legacy stocks, allowing their dividend growth to compound over time, all of them have a place in my Top 10 YoC rankings. These stocks include RPM International (RPM), Aflac (AFL), Pepsico (PEP), Johnson & Johnson (JNJ) and Procter & Gamble (PG).
I’m happy to see all except 2 stocks have a YoC north of 2%, all but 6 stocks are above 2.5% and all but 11 are higher than 3%.
Rank by YoC minus Yield
This ranking is afforded by calculating the difference between the previous two metrics (YoC and Yield). It begins to better reflect those stocks that have performed the best. It essentially de-emphasizes the higher-yielding stocks as the magnitude of the starting yield is much less of a factor.
Stocks that have been held for a longer period of time and have had years of compounding dividend growth show well here. You can see my 5 legacy stocks comprise 5 of the top 6 positions in this ranking, with RPM International (RPM) easily leading the way.
Other top stocks in this ranking include some of my best stocks from a capital appreciation perspective. The climbing stock price drives down the yield and creates a bigger difference between YoC and Yield. T. Rowe Price Group (TROW) and Qualcomm (QCOM) are a couple of examples here.
At the lower end of the rankings, the poor performers stand out now with negative numbers (i.e. YoC that is lower than the Yield). Some stocks with short holding periods for me are listed here (such as AMGN, OMC, BMY & PNW). I don’t worry too much about these stocks, as these are short-term results and these newer holdings need time to perform.
Negative differences for stocks that have been held for years are a problem. Some stocks sticking out like a sore thumb from this perspective are MO, OHI and GILD.
Stocks with really low yields, even if they’ve provided superior performance and dividend growth can be understated in this ranking. Example stocks from my Portfolio include V, NKE & MSFT. To rectify this, we’ll tweak the rankings one more time by calculating a YoC-to-Yield ratio…
Rank by YoC-to-Yield Ratio (aka YoC divided by Yield)
Looking at this ranking, it seems to best reflect what I feel to be the top stocks in my Portfolio.
Given that the majority of my Portfolio stocks have only been a part of my Portfolio for up to 6 years, the rankings mostly reflect price appreciation for now. However, the longer the holding periods get, the more impact dividend growth will have in each stock’s ranking.
RPM leads this list as well, and by a good margin. QCOM secured the 2nd spot thanks to strong price appreciation.
NKE, V, and MSFT are now all well represented in the top 16. I’m confident that MSFT would be inside the top 10 had it existed for a longer period of time in my Portfolio.
I like seeing 21 stocks (nearly 40% of my Portfolio) with a YoC that’s twice as big as the current yield.
The bottom of the ranking is highlighted by a YoC-to-Yield ratio of less than 1. MO is the worst ranked stock using this metric as well, with OHI and GILD also appearing again.
Ranking Summary
We took at look at the Yield and Yield on Cost (YoC) rankings for my Portfolio stocks.
While these two metrics don’t do a good job of highlighting the top performing stocks in the Portfolio, the YoC-to-Yield difference and YoC-to-Yield ratio provide some of that insight.
I believe the YoC-to-Yield ratio can provide decent results when it comes to finding the best-performing stocks in the Portfolio.
If one isn’t going to track the performance of each portfolio stock like I do in my Performance Check posts, then using the Yield and YoC metrics (that you probably already have) to calculate a YoC-to-Yield ratio should give you a quick idea of top performers, as I’ve covered here.
Looking over my YoC-to-Yield results highlights 3 stocks that have existed in my Portfolio for quite some time, but aren’t performing well: GILD, OHI & MO. These 3 stocks could be candidates for trimming or elimination. I’ve already been trimming OHI, but it may gain some company.
Does calculating the YoC-to-Yield ratio look to provide some value when it comes to quickly assessing the performance of your holdings? If you calculate this ratio for any/all of your portfolio stocks, do you have any with a better ratio than the 4.21 I had with RPM? Please share in the Comments!