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.
Below are two charts highlighting the monthly returns of the top 10 stocks from December (see list here). For presentation reasons, the chart is broken into the Top 5 and Next 5 lists.
The Top 5 stocks had a relatively flat month in December when the S&P 500 index had a solid gain. The stocks in the group paused to end the year after big gains since the start of August.
All of the stock moves for the month were rather small. The biggest gains came from AIG (NYSE:AIG) and McDonald's (NYSE:MCD) that slightly beat the 1.8% increase in the benchmark S&P 500. Both American Airlines Group (NASDAQ:AAL) and Corning (NYSE:GLW) produced small gains while Gilead Sciences (NASDAQ:GILD) was the only stock that turned in a loss for December. In total, the Top 5 stocks gained an average of 0.8% in comparison to the 1.8% gain of the S&P 500.
The Next 5 stocks saw a small loss for the month. Only United Airlines (NYSE:UAL) saw a gain in excess of the benchmark index. Annaly Capital Management (NYSE:NLY), Best Buy (NYSE:BBY) and Ameriprise Financial (NYSE:AMP) had disappointing losses in excess of 2% for the month while CenturyLink (NYSE:CTL) produced a small 1% gain. In total, the Next 5 stocks lost 1.0% for December, which failed to keep pace with the solid 1.8% gain of the S&P 500.
In all, the top 10 stocks were nearly flat for the month due to only small gains from the six stocks that had positive months. In total, the NPY stocks produced a December loss of 0.1% that underperformed the 1.8% gain of the S&P 500.
The top 10 list saw only minor changes for January typical of the last month of a quarter where large caps have limited quarterly updates. The flat stock prices over the month left the yields relatively similar to the start of December.
Corning continued to top the NPY list with a nearly 25% yield. The maker of Gorilla Glass for smartphones has seen a consistently large buyback keep pace with the large stock gains in 2016.
The average yield was up slightly due to the small loss for the participating stocks. A couple of stocks still maintained yields above 20%, with four yields exceeding 16%.
The average yield remains back in a more normal range at 16.1% to start January, up from December levels at 16.0%. The buyback yield remained steady at 12.3%. The dividend yield had a small bump up to 3.7%.
The viability of the NPY concept was proven again last year. The market started questioning buybacks as the amounts spent by corporations were down for the year through Q3. The end result, though, was that companies spending large amounts to reduce share counts outperformed the market over time.
This scenario continues to highlight the benefits of the concept that slowly rotates into the beaten-down stocks and out of ones that produce huge gains. As the market faces potential rate hikes, the best part of the NPY investment thesis is that these financially solid companies have the flexibility to choose between dividends and stock buybacks to provide the best outcome for shareholders.
Disclosure: I am/we are long AAL, AMP, CTL, GILD, NLY, 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.