Thursday, November 17, 2011

Investment Report - November 2011: Net Payout Yields

October was an excellent month with a 9.41% gain for this model, but the relative performance was lacking with the benchmark up 10.77%. This was the reverse of the results during the summer swoon, but mostly inline with what would be expected in this large cap model. Stocks with market caps over $10B typically underperform when the market soars.

Trades
The model had three trades in October.

FirstEnergy (FE) was sold as the stock saw decent gains during the summer months hence reducing the net payout yield below normal levels in the model. Typically the model looks to sell when a stock hits 52 weeks high and either buybacks tail off and/or the dividend yield slumps if the company doesn't raise the rate.

The other sell was Microsoft (MSFT) since it has reduced buybacks over the year making the stock less attractive. Possibly this was due to the Skype purchase or other potential deals that could be in the pipeline. Regardless the yield dropped to an unappealing level for a considerable time so the stock was sold.

The only buy for the month was DirecTV (DTV). DTV consistently ranks among the highest net payout yield stocks due to a massive buyback. The stock consistently tops the charts with yields in the 15-20% levels.

Top Performers
The top performers all hit close to 20% returns and were lead by financials such as Traverlers Companies (TRV), Hartford Financial (HIG), and Itau Unibanco Holding (ITUB). Some other top performers included Cisco Systems (CSCO) and CSX Corp (CSX).

Bottom Performers
The stocks that had negative returns were limited to only three stocks this month. Only two stocks had meaningful losses and even those were capped at 1.8%. In addition, the stocks were FE and DTV that were traded mid-month so the losses had limited impacts to the model returns. The only other loss came from Lorillard (LO) and it was only down fractionally.

Conclusion
The Net Payout Yields model reached its one year anniversary on November 2nd. During the first year the model performed just as expected especially when eliminating the couple percentage points it immediately lost upon startup. The model remains an ideal way to stay mostly fully invested in the market to catch the upside and also be protected from the downside with high dividend and buyback yields. On top of that, the model is not reliant on consistent timing of the market to where relative results from period to period could be drastically different.


Disclosure: Long all stocks mentioned. Please review the disclaimer page for more details. 





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