This article is a continuation of a monthly series highlighting the top net payout yield (NPY) stocks 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 NPY concept.
Below are two charts highlighting the monthly returns of the top 10 stocks from September (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 strong September following a subpar August. Seagate Technology (NASDAQ:STX) led the strength with a strong 14.2% gain followed by big gains in American International Group (NYSE:AIG) and Motorola Solutions (NYSE:MSI). Both DirecTV (DTV) and AT&T (NYSE:T) had returns below the 3.1% gain for the benchmark S&P 500 though AT&T was the only stock in the top 5 with a negative return.
T Total Return Price data by YCharts
The Next 5 stocks performed slightly worse with St. Jude Medical (NYSE:STJ) and Ameriprise Financial (NYSE:AMP) beating the market with gains of over 5% each. Both Annaly Capital (NYSE:NLY) and Kohl's (NYSE:KSS) had positive returns, but the stocks underperformed the S&P 500 index. Of all the top 10 stocks, only CenturyLink (NYSE:CTL) underperformed the market to a great extent with a loss of 5.3%.
^SPXTR data by YCharts
In all, the top 10 stocks outperformed the S&P 500 by nearly 100 basis points even with only half the stocks beating the market for the month. Clearly the large gain by Seagate Tech more than offset the loss by Centurylink. Typically this more conservative group of stocks performs better during the weak months, but in some strong months the model will outperform the market.
The list is full of companies that most investors wouldn't touch when the month began including several left for the dead such as CenturyLink that most investors still question owning.
The list encountered limited changes since the September report with only Annaly Capital falling off the list and only CenturyLink making a significant move. Due to a dividend cut, Annaly is no longer on the list while CenturyLink has seen a substantial stock loss to help increase the yields. O'Reilly Automotive (NASDAQ:ORLY) sneaked onto the list with a 9.3% total yield.
Naturally the last month in a quarter will see minimal changes in the list. Stock buybacks are the major driving force of significant shifts in NPYs so consequently the vast majority of changes take place when the quarterly buybacks are reported in earnings reports.
The average yields dropped slightly as the market gains continue to pressure yields. With the significant dividend yield of Annaly removed from the list, the buyback yield jumped up to 8.8% while the NPY decreased to 11.2%.
The stronger market pushed the lower end yields to below 10% for the first time in a while. The majority of the stocks on the list saw lower yields this month with only CenturyLink rising due to weaker stock prices. Regardless, the lower average yields will continue to substantially exceed the decreased dividend yields of the top large-cap dividend stocks.
As noted above, the reported Q3 numbers during the month of October could dramatically move yields. Investors can choose to get in front of the situation or wait for conformation. Either way, paying attention to the stock buybacks can be an important signal of where management expects the company to go in the next 12 months. As the market struggles through more political nightmares, investors in this concept should be comforted knowing that a sell-off will allow these financially strong companies to utilize the significant buyback programs to an even greater extent.
Disclosure: I am long AMP, CTL, DTV, KSS, MSI, NLY, T. 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.