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 October (see article here). 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 Seagate Technology (STX) reporting a negative month or even a return lower than 1.9%. Goldman Sachs (GS) had an exceptional month with a gain of nearly 5% while the S&P 500 dropped over 2%. Kohl's Corporation (KSS), Motorola Solutions (MSI), and ConocoPhillips (COP) also had strong returns of around 2%.
GS Total Return Price data by YCharts
The Next 5 stocks had a decent month with a big gain by WellPoint (WLP) that exceeded 5%. Unfortunately AstraZeneca (AZN), Limited Brands (LTD), and Intel Corporation (INTC) had returns lower than the market.
WLP Total Return Price data by YCharts
Even with only six out of 10 stocks beating the market, the list easily outperformed with a near breakeven return compared to the negative 2% for the market. Without the huge loss by Seagate, the list would've substantially beaten the market.
The list is full of retailers, healthcare, and tech 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.
With the addition of Dell Inc. (DELL), the list has become heavily weighted towards the tech sector. In addition, the other tech stocks moved higher on the list with Seagate gaining the largest yield at 26.11%. Intel as well jumped to the 6th position with a 17.1% yield.
The tech companies bring an interesting level of volatility to a model intended to be less volatile than the market. These companies are loaded with strong balance sheets typically heavy with cash. The only problem seen in the sector is that management teams appear to have less of an ability to judge the value of the stock.
Dell joined the list as the stock continues to plunge having recently hit a multi-year low with a nearly 37% decline this year.
The list lost Northrop Grumman (NOC) leaving it without a defense stock for the first time since compiling it in June. The stock has jumped nearly 20% since joining the list after the May selloff.
Top Ten Net Payout Yield Stocks For November
* Data sourced from SmartMoney.com.
After a weak September, the Top 10 list roared back with solid returns in October. The best part of this investing concept is that investors don't have to worry about panicking at the bottom with these stocks. Stocks with strong balance sheets and huge cash flows provide solid support in weak markets. Not to mention, that the large dividends and huge buybacks provide more support the lower the stock drops.
Fundamental investors in the net payout yield concept can focus directly on these 10 stocks absent any adjustments. Anybody interested in more sector diversification can purchase Northrop Grumman or DirecTV (DTV) that both offer yields over 16%. Both stocks offer similar yields to Dell while reducing the exposure to the highly volatile tech sector.
The fiscal cliff and any increase in dividend tax rates could impact these stocks through year-end. Investors should be prepared for a volatile few months though the buyback portion of these stocks will benefit from such a market.
Disclaimer: Please consult your financial advisor before making any investment decisions.