This article is a continuation of a monthly series highlighting the top net payout yield (NPY) stocks that was started back in June 2012 and explained in August 2012. The series highlights the best stocks for the upcoming month utilized in part to make investment decisions for the IB Asset Management model. 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 June (see list here). For presentation reasons, the chart is broken into the Top 5 and Next 5 lists and compared to the S&P 500 benchmark index along with the Cambria Shareholder Yield ETF (SYLD), which offers a fund for comparison purposes that is aligned with the NPY concept.
The Top 5 stocks continued the positive stretch with a big June after a couple of strong months in April and May. Best Buy (BBY) had an exceptional month with a 9.3% gain while only General Motors (GM) and a loss last month. The other stocks including CenturyLink (CTL), Corning (GLW) and Citigroup (C) generated gains for the period, but the amounts were all relatively small compared to the 7.7% loss of GM. The S&P 500 index had a solid 0.5% gain for the two months and the Cambria fund produced a surprising 1.2% loss. In total, the Top 5 stocks gained 1.1% for June and easily outperformed the benchmark S&P 500 and the Shareholder Yield ETF.
The Next 5 stocks cooled in June and underperformed the market again following a disappointing April/May period. Three stocks had small gains in June including O'Reilly Automotive (ORLY), Celgene (CELG) and Ameriprise Financial (AMP). These small gains couldn't offset the large losses from the other two stocks. Discover Financial Services (DFS) lost 4.7% and Liberty Global (LBTYA) lost 3.4% for the month. In total, the Next 5 stocks lost 0.9% for June, underperforming the 0.5% gain of the S&P 500 index though beating the 1.2% loss of the Shareholder Yield ETF.
In all, the top 10 stocks had a disappointing month. Despite seven stocks with gains, the three stocks with losses held down the groups returns. In total, the NPY stocks gained a small 0.1% in comparison to the 0.5% gain of the benchmark index and outperformed the 1.2% loss of the comparable ETF.
The top 10 list saw major shifts for July as several companies fight back from Amazon (AMZN) induced weakness. Corning claimed the top spot again with a similar yield of nearly 15%. The bottom three stocks on the list fell off due to higher yields from new additions to the list.
Both Walgreens Boots Alliance (WBA) and Kroger (KR) joined the list for the first time. The companies have boosted stock buybacks due to strong cash flows and weak stock prices following Amazon induced weaknesses.
The stocks follow in the path of Best Buy already on the list after being one of the original targets of Amazon in the electronics sector. Best Buy was beaten down in early 2016 when the retailer started a big buyback plan while the stock dipped to multi-year lows. The stock has seen large gains in the ensuing 30 months having roughly tripled in that time span.
The question is whether Walgreens and Kroger follow the same path. Both stocks have seen their NPYs surge above 10% while the stocks trade towards multi-year lows on fears of Amazon taking over the pharmacy and grocery sectors, respectively.
The other stock addition was United Airlines (UAL) that has been a core holding of the NPY model. The stock just reported strong Q2 results that pushed the stock to new highs. A NPY portfolio doesn't have to unload quality stocks when they dip off the top 10 list.
All of the stocks falling off the list maintained yields in the 10% range. Discover Financial, O'Reilly Automotive and Ameriprise Financial could easily rejoin the list next month.
None of the stocks maintained an NPY above 15% for July. The lowest yields though are now closer to 11% after dipping below 10% in prior months, far exceeding normal dividend yields.
The average yield rose to 12.1% to start July, down from 11.3% to start June. The buyback yield jumped to 9.4% due to the inclusion of stocks with 10%+ buybacks. The dividend yield also gained to 2.7% as the overall yield rose.
The yields of the NPY finally reached bottom earlier this year after reaching peak levels in 2016 and early 2017. The average stock on the list has more sustainable share buybacks and dividends that are more attractive than large, one-time purchases.
As predicted, the cash flood from the new tax law has started to boost spending on capital returns. The top 10 list is higher influenced by the Amazon effect, so investors need to be careful with diversification in a concentrated portfolio. Ultimately, the NPY concept provides plenty of downside protection in the competitive market.
Disclosure: I am/we are long CTL, GM, C, AMP, 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.