Dividend Stars Portfolio: December Update

BOSTON ( TheStreet Ratings)-- The Dividend Stars portfolio returned 2.04% in December on a total return basis, outperforming the benchmark S&P 500 Index over the same period by approximately 0.83%. Since launching on November 10th, the Dividend Stars portfolio has returned 4.01%, versus 2.43% for the S&P 500 Index. The current portfolio offers an average dividend yield of 2.55% versus 2.09% for the S&P 500.

Europe was once again on the mind of US investors, with the markets ebbing and flowing on any signs of hope or dismay that some sort of austerity package was in the works. Some relief came in early December, as the ECB announced expanded support for European banks, offering additional options for further lending and liquidity.

With investors struggling to remain focused on the situation here at home, there were ultimately some glimmers of hope. Consumer confidence reached an eight month high, as both jobless claims and pending home sales both showed modest improvements.

There were no changes to the portfolio during the month.

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Highlights:

ProShares Ultrashort FTSE China 25 ETF ( FXP) was the portfolio's best performer in the month, returning 8.58% . The leveraged ETF, which provides daily returns at twice the inverse of the FTSE China 25 Index, moved higher based on concerns of a slowdown in China. I used the ETF as a hedge on China exposure in the portfolio, namely via Norfolk Southern ( NSC) and McGraw Hill ( MHP). The results were better than I expected, and while MHP held up during the month, the hedge helped alleviate some pain with industrial names such as Deere ( DE) and NSC. While I still favor some short China exposure, I don't love the excessive volatility of the instrument, and will be watching closely to ensure that we don't drop below my entry point of $28.

Exxon Mobil ( XOM) was the second best performer in the month, returning 6.23%. Crude oil prices are starting to move again, and Exxon has moved almost lock step with crude over the past month. I like the momentum here and think Exxon has a good chance of getting to $100 by the end of 2012.

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Lowlights:

Intel ( INTC), was the second worst performer in the month at -2.69%. Hard drive shortages, caused by flooding in Thailand, forced Intel to scale back on 2012 guidance, leading to a wave of downgrades and estimate cuts. I'm still hanging in there with the stock, as I believe Intel can overcome the short term disruptions in supply (hard drive supplies are expected to normalize in mid-2012) and capitalize on a few forthcoming catalysts - such as the Ultrabook initiative (Intel's answer to the sleek MacBook Air laptops) and the launch of Windows 8 (the first mainstream touch operating system) in 2012. At a cost basis of $24, and a tantalizing 3.5% dividend yield, I'm willing to wait out some of the risks in order to own the leader in the chip space.

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Other Notable News:

Novartis ( NVS) had a good month (up 4.75%); in spite of some negative news regarding its blood pressure drug Tekturna. The company announced that they were ending a recently concluded study of the drug for high-risk patients with diabetes and renal impairment. The study was terminated early due to patient safety concerns. There were thoughts that the drug could be a future blockbuster for Novartis, but now it's more likely that the drug could be sold or taken off the market. Tekturna accounts for roughly 1% of sales for NVS, and has not turned a profit as of yet. JP Morgan analysts have noted that the news might not be the end of the world, and could result in "substantial cuts to the investment behind Tekturna, with upside to 2012 and 2013 margins." The stock remains a conviction pick, as its strong pipeline and diversified business line (which includes generic business Sandoz and eye care company Alcon) should help support the upcoming patent expiration of Diovan in 2012.

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Portfolio Returns (Dec 1st to Dec 31st):


Proshares Ultrashort FTSE (FXP): +8.58%
Exxon Mobil (XOM): +6.23%
McGraw Hill (MHP): +5.07%
Novartis (NVS): +4.75%
Proctor & Gamble (PG): +4.1%
Chubb (CB): +3.93%
PepsiCo (PEP): +3.53%
Microsoft (MSFT): +2.69%
Honeywell (HON): +0.33%
Deere (DE): -1.23%
Target (TGT): -1.78%
Norfolk Southern (NSC): -2.57%
Intel (INTC): -2.69%
Mattel (MAT): -3.38%

If you have any questions, comments or suggestions, feel free to message me on Twitter at @bostoncfa
Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.