This article is a continuation of a monthly series highlighting the top net payout yield 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 net payout yield concept.
Below are two charts highlighting the monthly returns of the top ten stocks from May (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 strong May after a weak April. American International Group (NYSE:AIG), DirecTV (NYSE:DTV), and Kohl's (NYSE:KSS) had strong gains for the month that easily beat the 2.3% gain of the S&P 500. Seagate Technology (NASDAQ:STX) though smashed those performances with a phenomenal 17.4% gain. The only disappointment was that L Brands (LTD) dropped 0.8% for the month.
AIG Total Return Price data by YCharts
The Next 5 stocks performed nearly as well with General Motors (NYSE:GM) and Lowe's (NYSE:LOW) smashing the market with both gaining nearly 10%. While WellPoint (WLP) easily beat the market with a 5.6% gain, the other two stocks performed in line with the market as O'Reilly Automotive (NASDAQ:ORLY) and Xerox Corporation (NYSE:XRX) had gains averaging 2%.
WLP Total Return Price data by YCharts
With 8 out of 10 stocks beating the S&P 500, the list smashed the market by about 5%. Several stocks had material positive returns that were only offset by one stock that had a negative return for May.
The list is full of companies that most investors wouldn't touch when the month began. These results continue to highlight the concerns over the influx of tech companies in the top yielding stocks as those stocks continue to have wild swings defeating the conservative nature of this concept. Investors looking to repeat this concept might want to avoid stocks such as Seagate Tech.
The list encountered some major changes since the May report as the bottom stocks fell off the list mainly due to stock gains for GM and Lowe's combined with reduced buyback levels. The major additions were due to significant buybacks over the last couple of quarters by AT&T (NYSE:T) and St. Jude Medical (NYSE:STJ). In addition, both stocks saw significant declines from peak levels in May. Ameriprise Financial (NYSE:AMP) rejoined the list despite a strong stock performance in the last year due to a strong commitment to buybacks.
The average yields declined as the buyback portion dropped to 11.2% with the continued strong rally in the stock market. The dividend part decreased slightly to 2.0% as the focus shifts more towards buyback stocks with the attractiveness of dividend stocks. The NPY decreased by over 120 basis points to 13.2%.
Even after strong market gains for the first five months of the year, the stocks on the Top Ten list continue to support yields exceeding 10% each. Though the average yield decreased for the month, the yields substantially exceed the now 3-4% yields of the top large cap dividend stocks.
With the stock market hitting record highs, the top net payout yield stocks naturally went along for the ride.
As the Top Ten stocks average buyback yields maintain levels above 11%, any market pullback in June would allow the companies to purchase shares at cheaper levels. A perfect scenario for any long-term investors concerned that the market is extended after hitting record highs.
Disclosure: I am long AMP, DTV, KSS, LOW, 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. 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.