This article is a continuation of a monthly series highlighting the top net payout yield stocks that was started in June (see article). The series highlights the best stocks for the upcoming month.
Net Payout Yields Defined
The net payout yield is the combination of the dividend yield and the net buyback yield added together to calculate the yield returned to shareholders. The net buyback yield adds stock repurchases and subtracts shares issued. The yield is calculated using the amount of buybacks over the last four quarters divided by the current market cap.
This study compared the return of the top net payout yield stocks in the Dow to that of the highest dividend stocks (Dogs of the Dow) each year. The surprise winner was the net payout yield stocks that easily beat the market and the highest dividend stocks.
Stone Fox Capital runs a model at Covestor that focuses on this concept. Instead of limiting the model to Dow stocks, it was opened up to any stock with a market cap over $10B. This series focuses on that potential list of stocks.
Below are two charts highlighting the monthly returns of the top ten stocks from August. Due to limitations with YCharts, the chart was broken into the Top 5 and Next 5 lists.
The Top 5 stocks had an exceptional month with only Motorola Solutions (NYSE:MSI) reporting a negative month or a return lower than the 2.55% of the S&P 500 index. Retailer Kohl's (NYSE:KSS) had another exceptional month with a gain over 6%, while WellPoint (WLP) topped the charts with an 11.8% gain.
The Next 5 stocks had an average month with big gains by Aetna (NYSE:AET) and DirecTV (NASDAQ:DTV) offset by a loss for AstraZeneca (NYSE:AZN). The group only slighted edged out the return of the S&P 500.
With 6 out of 10 stocks beating the S&P 500, the list easily outperformed the market for another month. Not to mention, the list is full of retailers, defense, and insurance companies that most investors won't touch. These results further highlight the power of picking the top yielding stocks to take the emotion out of investing.
Seagate in fact jumped to 4th after a large buyback program, even with the stock jumping 100% this year. This makes the stock one of the more perplexing entries into the list as an addition usually coincides with a stock decline.
The list lost two stocks after Aetna and DirecTV dropped from the top ten. Don't feel too bad for these stocks as each one still yields more than 15%. Aetna in fact has a higher yield now, but the higher yield from Seagate pushed it off the list.
The list had one major move as AstraZeneca dropped down to 10th following smaller buybacks in Q2 over those in 2011.
Top Ten Net Payout Yield Stocks For September
|Company||Buyback Yield (%)||Dividend Yield (%)||NPY (%)|
|Goldman Sachs (NYSE:GS)||23.43||1.74||25.17|
|Northrop Grumman (NYSE:NOC)||13.89||3.27||17.16|
|Limited Brands (LTD)||14.74||2.09||16.83|
While investors continue to slam on the buyback component of this model (see comments section from previous articles), the top ten net payout yield stocks easily outpaced the S&P 500 again.
This list provides great diversity among numerous sectors. Investors should look to investing in these stocks over dividend only stocks as the fiscal cliff and possible tax increases could hit the popular dividend only paying stocks the hardest. Not to mention that the large buyback component of these stocks will be able to take advantage of any major stock sell-off.
Disclosure: I am long COP, DTV, GS, KSS, 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: Please consult your financial advisor before making any investment decisions.