Top 10 Net Payout Yields For August 2016

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Includes: AAL, AIG, AMP, BA, BBY, GILD, M, MCD, MSI, NTAP, QCOM, UAL
by: Stone Fox Capital

Summary

The top 10 net payout yields had a sizable gain that easily beat the return of the benchmark in July.

The top 10 net payout yield stocks average yields of 19.7% to start August.

American Airlines maintained the lead with the highest yield to start August at 33.8%.

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 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.

July Returns

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

The Top 5 stocks had an extremely good month in July when the S&P 500 index was up sharply. A lot of stocks beaten down over the prior couple of months had big snapback rallies. American Airlines Group (NASDAQ:AAL) and Qualcomm (NASDAQ:QCOM) rallied over 15% each. Even Macy's (NYSE:M) and Motorola Solutions (NYSE:MSI) beat with S&P 500 index with gains in excess of 5%. AIG (NYSE:AIG) posted a 3% gain despite underperforming the benchmark for the month. In total, the Top 5 stocks gained an average of 11.4% in comparison to the solid 3.6% gain of the S&P 500.

AAL Chart

The Next 5 stocks had a similarly strong July with only one stock posting a loss for the month. The gains were led by the 14% surge in the price of United Airlines (NYSE:UAL). Outside of the 5% loss of Gilead Sciences (NASDAQ:GILD), the other three stocks of NetApp (NASDAQ:NTAP), Ameriprise Financial (NYSE:AMP), and Best Buy (NYSE:BBY) had gains in excess of 6% for the month. In total, the Next 5 stocks generated a strong 6.6% gain in comparison to the 3.6% gain of the benchmark index.

UAL Chart

In all, the top 10 stocks had an exceptional month with an average gain during the month of 9.0% when the benchmark S&P 500 index was up 3.6%. The exceptional 25.4% gain of American Airlines helped produce the strong rebound in the NPY stocks.

August List

The top 10 list saw one big shift for August untypical of the months where companies release quarterly updates on stock buybacks. Typically several stocks will drop off the list along with other large moves within the list.

Qualcomm dropped off the list for August, but the other stocks only saw minor shifts. American Airlines topped the list for another month as the airline increased stock buybacks as the airline stock slumped during Q2.

McDonald's (NYSE:MCD) joined the list for the first time due to massive stock buybacks over the last couple of quarters and a solid 3% dividend yield. The list is now highly focused on the airline, technology, and retail sectors.

The average yield surprisingly remained stable despite the 9% gain in the NPY stocks. The amazing part is that the top five yielding stocks exceed 19% yields and all of the stocks still yield over 14%. Even a stock like Boeing (NYSE:BA) with a 12.3% yield was unable to crack the list.

The average yields remained high to start August, with the NPY flat from July at 19.7%. The buyback yield gained further to a very elevated 17.3% due to weak stock prices during Q2. The dividend yield had a small decrease to 2.4%.

Conclusion

The viability of the NPY concept was proven during July. Not only did the stocks bounce back during the month, but the companies themselves spent the last few months taking advantage of weak stock prices. This scenario continues to highlight the benefits of the concept where dips are typically safe buying opportunities.

One needs to consider that the average stock spent an amount on stock buybacks during the last year equivalent to over 17% of the current market value. The yields will likely subside some during Q3 as companies like the airlines probably peal back buybacks after stock gains. Regardless, the best part of the NPY investment thesis is that these financially solid companies returning large amounts of capital provide the cushion to buy and hold these stocks on sell offs like the prior few months.

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

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.