This article is a continuation of a monthly series highlighting the top net payout yield stocks that was started back in June, 2012 (see article). The series highlights the best stocks for the upcoming month. Please review the original article for more information on the net payout yield concept.
Below are two charts highlighting the monthly returns of the top 10 stocks from April (see list here). Due to limitations with YCharts, the chart was broken into the Top Five and Next Five lists.
The Top Five stocks had a disappointing month after a strong April. American International Group (NYSE:AIG) and Kohl's (NYSE:KSS) had solid gains for the month that easily beat the 2.4% gain of the S&P 500. Both Seagate Technology (NASDAQ:STX) and DirecTV (NASDAQ:DTV) performed ok with flat results for the month. The biggest problem was that Motorola Solutions (NYSE:MSI) plunged 10.2% after an earnings warning.
STX Total Return Price data by YCharts
The Next Five stocks performed much better with General Motors (NYSE:GM), CA Technologies (NASDAQ:CA), and WellPoint (WLP) smashing the market with all three gaining over 8%. The other two stocks slightly lagged the market with flat gains as ConocoPhillips (NYSE:COP) and Xerox Corporation (NYSE:XRX) both had slightly negative returns for the month.
WLP Total Return Price data by YCharts
Even with only five out of 10 stocks beating the S&P 500, the list outperformed the market by about 1%. Several stocks had material positive returns to offset the big loss by Motorola Solutions.
The list is full of companies that most investors wouldn't touch when the month began. These results continue to highlight the concerns over the influx of tech companies in the top-yielding stocks as those stocks continue to have wild swings defeating the conservative nature of this concept.
The list encountered some minor changes since the April report as the bottom stocks fell off the list mainly due to stock gains for CA and the reduction of the buyback previously communicated by ConocoPhillips. The major change was the plunging yield of Motorola Solutions due to a smaller buyback. L Brands (LTD), Lowe's (NYSE:LOW) and O'Reilly Automotive (NASDAQ:ORLY) were added to the list. Lowe's maintained a strong yield from last month to join the list while O'Reilly was added to the list by slightly increasing the buyback over last year. L Brands mainly made the list from a one-time dividend. Typically these types of dividends aren't as attractive to any new shareholders.
The average yields increased as the buyback portion dropped to 12.1% with the continued rally in the stock markets. The dividend part actually increased slightly to 2.3%, but the NPY decreased by over 180 basis points to 14.4%.
Even after strong market gains for the first four months of the year, the stocks on the Top 10 list continue to support yields exceeding 11%. Though the average yield decreased for the month, the yields substantially exceed the now 3-4% yields of the top large-cap dividend stocks.
With the stock market hitting record highs, the top net payout yield stocks naturally went along for the ride.
As the Top 10 stocks average buyback yields maintain levels above 12%, any market pullback in May would allow the companies to purchase shares at cheaper levels. A perfect scenario for any long-term investors concerned that the market is extended after hitting record highs.
Disclosure: I am long CA, COP, DTV, KSS, LOW, MSI, WLP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.