Top 10 Net Payout Yields - September 2018

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Includes: AMAT, BBY, C, CELG, CSCO, CTL, DFS, EBAY, GLW, KR, LBTYA, MU, NXPI, QCOM, SYLD, WBA
by: Stone Fox Capital
Summary

The top net payout yield stocks had a 5.0% gain in August, outperforming the S&P 500 index.

The top 10 net payout yield stocks averaged yields of 11.6% to start September.

Celgene remained in the top spot with a yield of 13.7% to start September.

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.

August Returns

Below are two charts highlighting the monthly returns of the top 10 stocks from August (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 (NYSEARCA:SYLD), which offers a fund for comparison purposes that is aligned with the NPY concept.

The Top 5 stocks continued the positive stretch with massive gains again in August after several strong months. The key to the big gains for the group were the large returns by both Cisco Systems (NASDAQ:CSCO) and Kroger (NYSE:KR) that averaged about 10% each. The remaining three stocks all performed around the 3.0% gain of the S&P 500 index. Celgene (NASDAQ:CELG), Walgreens Boots Alliance (NASDAQ:WBA) and Corning Inc. (NYSE:GLW) all generated positive returns, preventing any real offsets from the strong gains of Cisco and Kroger. The Cambria fund produced a relatively strong 2.7% gain, though still below the Top 5 stocks and the benchmark index. In total, the Top 5 stocks gained 5.8% for August to easily outperform the benchmark S&P 500 index and the Shareholder Yield ETF.

Chart CELG data by YCharts

The Next 5 stocks had a nearly equally impressive month in August, easily outperforming the gains of the benchmark index. As with the Top 5 stocks, a couple of massive gains led to the strong month. Both CenturyLink (NYSE:CTL) and Discover Financial Services (NYSE:DFS) had gains in excess of 9.4% for August, while Best Buy (NYSE:BBY) chipped in with a rather impressive 6.0% gain. eBay (NASDAQ:EBAY) had a solid gain to contribute to the outperformance of the group, but Applied Materials (NASDAQ:AMAT) bombed during the month, losing 11.5%. In total, the Next 5 stocks gained 4.2% for August, outperforming the 3.0% gain of the S&P 500 index and the 2.7% gain of the Shareholder Yield ETF.

Chart CTL data by YCharts

In all, the top 10 stocks had a very strong month, with only one stock declining during August. The massive gains of four stocks that topped 8.4% returns in the month led the way. In total, the NPY stocks gained a large 5.0% in comparison to the 3.0% gain of the benchmark index and the 3.8% gain of the comparable ETF.

September List

The top 10 list saw minor shifts for September, as the large-cap companies typically don't report capital return changes during August. The top of the list had some minor reshuffling, with Applied Materials jumping to the second spot with a 12.8% yield.

The additions to the list for September were Citigroup (NYSE:C) and Liberty Global (NASDAQ:LBTYA). Both of these companies were recently on the list and are heavily focused on stock buybacks. In fact, both stocks yielded right around 10% last month, so the changes are more due to the stock moves in the last month than any major adjustments in capital returns.

The two stocks falling off the list maintained yields in the 10% range suggesting investors will see them on this list again. Both CenturyLink and Discover Financial saw stock gains in the 10% range during August that pressured their NPYs lower.

One interesting point on stock buybacks for this period is the massive ones started in the tech sector. Both Micron Tech (NASDAQ:MU) and NXP Semiconductors (NASDAQ:NXPI) have initiated large buybacks recently. While Micron announced a plan to spend $10 billion on share buybacks, it isn't clear the memory giant will spend enough in any year to top an NPY of 10%. NXP Semiconductors, on the other hand, has already announced the repurchase of $3.8 billion worth of stock that would amount to a yield of nearly 12% when the company reports the official numbers.

Most technical programs wouldn't add NXP Semiconductors to their portfolio due to the company not officially reporting quarterly results that include the buybacks yet, but the plans to repurchase $5 billion by year end would make the stock the largest yielding in the current market. Individual investors have the flexibility to add NXP Semiconductors to a portfolio to capture the recent weakness in the stock.

Naturally, the thesis only works when companies have actually purchased stock and not based on the intent to buy stock like in the case of Micron. In my theory, an official announcement from the company makes the stock valid to include in my model. Remember that Qualcomm (NASDAQ:QCOM) planned to buy NXP Semiconductors for $127.50, so the company buying shares in the $90s is no surprise. The table below though will only include those stocks actually reporting the buybacks with quarterly results.

None of the stocks maintained an NPY above 15% for September. The lowest yields, though, are still close to 11%, providing more diversification in the list and far exceeding normal dividend yields.

The average yield dipped to 11.6% to start September, down from 12.0% to start August. The buyback yield jumped to 10.0% due to the large dividend yield of CenturyLink dropping off the list. The dividend yield plunged to 1.6% to offset the buyback yield jump.

Naturally, anybody looking for more dividend yield can leave the current 9.5% yield of CenturyLink in their portfolio.

Conclusion

The yields of the NPY continue to stabilize in the 12% range even after a big market rally the last couple of months. The average stock on the list has more sustainable share buybacks and dividends that are more attractive than large, one-time purchases that boosted the overall yield in the past.

As predicted, the cash flood from the new tax law continues to boost spending on capital returns. Further, tech stocks like NXP Semiconductors and Micron are only starting large stock buyback plans that could boost the yields of the list to end the year. Ultimately, the NPY concept provides plenty of downside protection in the volatile market.

Disclaimer: 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.

Disclosure: I am/we are long CELG, C, EBAY, CTL. 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.