Monday, November 29, 2010

Trade: Bought Lorillard and Lockheed Martin

Both Lorillard (LO) and Lockheed Martin (LMT) were added to the Net Payout Yields portfolio. This model is now available on Covestor.

Lorillard provides a 5.4% dividend yield in addition to a generous buyback over the last 12 months making it's Net Payout Yield of 11.8% one of the highest yielding stocks with a market cap in excess of $10B. Tobacco stocks continue to pay high dividends as investors ignore them because of their social believes. At Stone Fox Capital, we strive for the highest legal return and if you wish any gains from a socially unacceptable stock can be given back to charity. 

Lockheed Martin also provides a very generous dividend yield of 4.4% combined with a big buyback for a NPY of 11.8% as well. Defense stocks have been under pressure of late with expectations for cutbacks in the US. Apparently management disagrees whether they expect higher sales in emerging markets to fill in holes as the US cuts back or if the US just doesn't cut that many programs.

Both LO and LMT highlight the focus of a Net Payout Yield portfolio. Both companies are returning a ton of cash to shareholders yet they continue to sell the stock in favor of the hot stock of the month. This portfolio requires discipline to basically buy the out of favor sector. Right now that is apparently drug, insurance, tobacco, and defense oriented stocks.

The model has been underperforming of late likely due to the concern over the extension of the Bush tax cuts on dividends. High paying dividend stocks have been struggling making this an ideal time to jump into these stocks. Especially ones like the above that have buybacks that can take advantage of a weak stock price. Further highlighting the advantages of a company that utilizes the best method for rewarding shareholders instead of being trapped into one strategy. 

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