Stock Quotes in this Article: KIM, PBI

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NEW YORK (Scott's Investments) -- Approximately once per month I run a high-yield momentum screen using the free service on Finviz and post the results.

Last month's list is here, and as of January the strategy is now tracked as a continuous, hypothetical stock portfolio on Scott's Investments. The strategy did relatively well in 2010 and is one I continue to track because of its promise. In recent months I have also done a variation of this strategy with the Dividend Champions list in which I only search stocks that have had a history of raising dividends for 25 or more years.


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    The screen looks for high-yielding high-momentum stocks, which have historically been the best-performing. I screen the S&P 500 for stocks yielding greater than 4% and then rank them by six-month returns. There were 49 results this month (vs. 53 last month), and I have listed the top 11.

    In a study done by Charles Schwab looked at the 1,500 largest stocks by market capitalization from 1990 to 2009 and divided yielding stocks into four quadrants. They ranked the highest-yielding stocks by six-month price momentum, divided them into five segments, and found that highest-yield stocks with the highest six-month price momentum outperformed all other momentum segments (in other words, those high-yield stocks with lower price momentum) as well as the annual return of the other yield quadrants.

    As I have previously mentioned, the screen is more of a trading strategy and less of an income strategy (unlike some of my dividend aristocrat screens and Dividend Champion screens, which emphasize stocks that have a history of raising dividends), although the dividends do play an essential component in the overall returns. Thus, turnover could be high and the strategy is not for everyone. However, some months have shown relatively low turnover from month to month but this could change in the future.

    I began tracking the strategy as a portfolio on Jan. 11, and returns to date are 1.89%. For Monday, Feb. 14, the strategy is selling CMS Energy (CMS) and using the proceeds to purchase Pitney Bowes (PBI). Also, Kimco Realty (KIM) has dropped off the screen because it is yielding less than 4% due to share price appreciation. However, in an attempt to limit turnover, stocks whose yields 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 lags the top 11 stocks.

    Below are the top 11 stocks. As noted, KIM remains in this month's portfolio despite a yield of 3.88%.

    At the time of publication, author had no positions in stocks mentioned.
    Scott's Investments focuses on consolidating and tracking free online investment resources for the public with an emphasis on ETFs, portfolio/trading strategies and macroeconomics. Follow Scott's Investments on Twitter.