This article is a continuation of a monthly series highlighting the top net payout yield stocks (NPY) that was started back in June, 2012 (see article) and explained in August, 2012 (see article). The series highlights the best stocks for the upcoming month. Please review the original articles for more information on the net payout yield concept.
Below are two charts highlighting the monthly returns of the top-10 stocks from August (see list here). Due to limitations with YCharts, the chart was broken into the Top 5 and Next 5 lists.
The Top 5 stocks had a very subpar August following a weak July. DirecTv (DTV) led the weakness with an 8.1% loss and was quickly followed by solid losses from AT&T (T), Seagate Technology (STX) and Kohl's (KSS). Only American International Group (AIG) had a positive return of 2.1% for the month, but that solid return wasn't enough for the Top 5 stocks to exceed the 2.9% loss of the S&P 500.
T Total Return Price data by YCharts
The Next 5 stocks performed slightly better with Motorola Solutions (MSI) beating the market with a gain of over 2.1%. Both Annaly Capital (NLY) and Ameriprise Financial (AMP) beat the S&P 500 index even while reporting losses of around 2%. Both St. Jude Medical (STJ) and CenturyLink (CTL) underperformed the market with losses of 3.8% and 7.6%, respectively.
MSI Total Return Price data by YCharts
In all, the top-10 stocks only slightly underperformed the S&P 500 even considering a couple of sizable losses for the month. With only two stocks making it through the month performing better than a 2% loss, the group is set up to take advantage of sizable stock buyback plans. Typically this more conservative group of stocks performs better during weak months like the one in August, but some of the large gains from prior months was given back.
The list is full of companies that most investors wouldn't touch when the month began including several recently left for the dead such as Annaly Capital and CenturyLink.
The list encountered limited changes since the August report with no stocks falling off the list and only Kohl's making a significant move. The NPY for Kohl's fell from 11.9% to 10.1% causing the stock to fall from the fifth position to the ninth.
Considering the lack of movement with the stocks, this month is a good time to discuss and plan for future movements in the list. Both AIG and Seagate Tech have eliminated or reduced stock buyback plans; therefore ensuring the stocks will fall off the lists when Q3 numbers are reported. On the flip side, stocks such as CenturyLink and Annaly Capital are likely to see increased yields due to new buyback plans or stock sales from last year no longer being counted. Remember that the NPY counts the buybacks over the last four quarters so any changes in the yield will be reflective of the difference between Q3 this year and last year.
In total, the average yields gained slightly as the buyback portion increased to 7.8% with the weaker stock market. The dividend yield remained a consistent 3.8% while the NPY increased to 11.6% from 11.5% last month.
The weaker market provided some slightly more attractive yields, but in general the list of stocks was uneventful in August. While the stocks on the Top-10 list continue to support yields exceeding 10%, the upper-end yields are greatly compressed from numbers that once supported 20% yields. Though the average yield continues to compress, the yields substantially exceed the now 3%-4% yields of the top large-cap dividend stocks.
As noted above, several stocks should see dramatically higher or lower yields after the Q3 numbers are reported next month. Investors can choose to get in front of the situation or invest with the more conservative approach of waiting for confirmation. At this point it appears that the U.S. will avoid a costly strike on Syria that would cause a market crash. Any such scenario that causes the market to sell off will allow these financially strong companies to utilize the significant buyback programs to an even greater impact.
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.