Top 10 Net Payout Yields For May 2016

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Includes: AAL, AIG, AMP, BBBY, BBY, GILD, M, MSI, NTAP, QCOM, STX, UAL, UTX
by: Stone Fox Capital

Summary

The top 10 net payout yields had a sizable loss that failed to match the small gain in the benchmark for April.

The top 10 net payout yield stocks average yields of 18.1% to start May.

American Airlines took over the lead with the highest yield at 27.0%.

This article is a continuation of a monthly series, highlighting the top net payout yield (NYSE: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 utilized in part to make investment decisions for the Covestor model that is now beating the S&P 500 for five out of the last six years. Please review the original articles for more information on the NPY concept.

April Returns

Below are two charts highlighting the monthly returns of the top ten stocks from April (see list here). For presentation reasons, the chart is broken into the Top 5 and Next 5 lists.

After the big returns in March, the Top 5 stocks had a rough month in April when the S&P 500 index was basically flat. Only AIG (NYSE:AIG) had a positive return for the month. Both Seagate Technology (NASDAQ:STX) and Macy's (NYSE:M) were hit hard by weak results or worsening expectations in the respective sectors. The other stocks of Motorola Solutions (NYSE:MSI) and Qualcomm (NASDAQ:QCOM) had slightly negative returns that failed to match the 0.3% gain of the benchmark index. In total, the Top 5 stocks loss on average 9.1% that was a big disappointment in comparison to the small gain of the S&P 500. Without the big loss of Seagate Tech, the group had a loss of 1.8%.

MSI Chart

MSI data by YCharts

The Next 5 stocks had similarly negative results for April that failed to keep pace with the benchmark index. In a similar manner, another two stocks had large losses that far exceeded 10%. Both American Airlines Group (NASDAQ:AAL) and NetApp (NASDAQ:NTAP) were hit hard despite aggressive stock buybacks plans. Ameriprise Financial (NYSE:AMP) and United Technologies (NYSE:UTX) had small gains that beat the benchmark index. Those gains weren't large enough to over come the losses that included a 5% decline by Bed Bath & Beyond (NASDAQ:BBBY). In total, the Next 5 stocks saw a 5.5% loss that failed to match the slight gain of the benchmark index.

AAL Chart

AAL data by YCharts

In all, the top 10 stocks had a horrendous month with a large 7.3% loss during a month when the benchmark S&P 500 index was relatively flat. Without the outsized loss of Seagate Tech, the NPY stocks still saw a 3.6% loss.

May List

The top 10 list saw some large shifts for May typical of the months after quarterly updates provide new information on stock buybacks. In addition, the list is being updated to exclude Seagate Tech, which has fallen far below the $10 billion market cap target.

My Covestor model has generally avoided some of these more volatile stocks that barely make the $10 billion market cap requirement for the list. The standard recommendation is to not dump stocks only due to dropping below the $10 billion market cap, but the report is going to start looking into removing these stocks from the list and potentially look into increasing the market cap requirement in order to avoid the volatile stocks that defeat the purpose of this conservative list.

The other main moves in the list are the emergence of airline stocks. Not only does American Airlines have the largest yield now, but United Airlines (NYSE:UAL) joined the list due a large Q1 stock buyback while the stock slumped.

Other big changes include the addition of a biotech in Gilead Sciences (NASDAQ:GILD) and a flip in retailers from Bed Bath & Beyond to Best Buy (NYSE:BBY).

The other stock to fall off the list was United Tech that didn't repeat the large $3 billion buyback from last Q1. The yield remains a relatively high 9.2%.

Despite the removal of the high yield from Seagate Tech, the top five yielding stocks still exceed 18%.

The average yields were still higher to start May, with the NPY increasing to 18.1% from 17.5% in the prior month. The buyback yield rebounded to a very elevated 15.4%. The dividend yield had another small decrease to 2.7% due to the removal of the very large dividend from Seagate Tech.

Conclusion

After a couple of months of big gains, the NPY stocks were hit with large losses in April. As highlighted prior to those rallies, the yields are incredibly high and the stocks will eventually benefit from the companies repurchasing large amounts of their own stock at ever lower prices. The same is likely to occur over the next few months.

One needs to consider that the average stock spent an amount on stock buybacks during the last year equivalent to over 15% of the current market value. Going forward, Stone Fox Capital will look into increasing the market cap requirement for the list in order to reduce the volatility.

Disclosure: I am/we are long AAL, AMP, M, MSI, NTAP, QCOM.

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.