Net Payout Yield Focus: BP (BP)
One of the better investments in our Net Payout Yield portfolio has been BP with it's 6.5% yield. BP has one of the higher yields in the portfolio yet they've also historically bought back stock giving them a net yield that has topped 10%. One of the reasons to focus on BP today is because they made a huge find of over 3 billion barrels of oil in the Gulf of Mexico. BP has severely lacked in its exploration program of late and this is encouraging news. Not only will it add 1B barrels to its proven reserves, but this also leads to the possibility of more discoveries in the gulf area where they hold a bunch of leases.
In general though, this portfolio doesn't focus as much on the prospects of the company as much as we let the yields draw the picture for us. After all, companies the size of BP don't pay out 10% yields if they lack the cash and cash flow prospects of strong long term investments. Exxon (XOM) is another one of the options in this sector. In this case, their lack of exploration and the fact that we wanted more dividends in the portfolio led us to choose BP over XOM. XOM though has a tremendous yield of 11.4% with their 9% buyback and 2.4% dividend.
History has told us that these type of stocks typically out perform the market and dividend only paying companies. Luckily for us most people just focus on dividends so that gives us a leg up. BP will be one of the stocks heavily invested in dividend portfolios, but its overlooked for its total payback.