The model was inactive for the second month during September as the weak market increased the yields and hence the valuation attractiveness of most of the equities in the model. A few stocks though have recently reached new 52 weeks highs causing the yields to decline. For example, Bristol-Myers Squibb (BMY) has seen the dividend yield drop to 4% and without a buyback the Net Payout Yield (NPY) has reached below normal yields in the model.
The best performing stocks in such a weak stock market were naturally the healthcare, consumer staples, and utility stocks. As mentioned, BMY hit 52 week highs during the month with a 5% gain. Other big gainers included WellPoint (WLP) up 3.5%, Entergy (ETR) up 3%, FirstEnergy (FE) up 2.8%, and Campbell Soup (CPB) up 1.6%.
Naturally in such a weak market the bottom performers were stocks tied to global growth. The five worst performers had declines of over 13%. Vale (VALE) had the largest drop at over 17% while Hartford Financial (HIG), CSX (CSX), Capital One Financial (COF), and Itau Unibanco Holding (ITUB) all had losses between 13 and 15%.
The market has seen significant weakness over the summer, but this model has held up well leaving investors in a good position to rebound with any fall rally. Also since a few sectors held up well, the model has the ability to rotate into weaker sectors that are now yielding more.
Dividend paying stocks have held up much better during this market selloff than during 2008. Whether it's due to stronger balance sheets this time or that investors have been rotating to dividend paying stocks that yield more than government bonds, these stocks still remain very attractive. Large companies continue to announce large buybacks and increased dividend yields as opposed to the cutbacks during 2008 and 2009 suggesting an economic outcome better than most think. Regardless, this model solely focuses on the highest yielding large caps and will continue looking for opportunities to rotate into even higher yielding stocks than what the model currently owns.
Disclosure: Long all stocks mentioned. Please review the disclaimer page for more details.