December was yet another solid month on a absolute basis, with a 0.53% gain for this portfolio, but on a relative basis the portfolio underperformed the benchmark S&P 500 that was up 0.85%. For 2011, the portfolio was up 6.82% versus 0.0% for the benchmark. Despite all the volatility in the markets, the Net Payout Yields Model had a good absolute and relative performance for the year.
Since this portfolio is not dependent on fundamental analysis or economic forecasts, it isn't always prudent to focus on the prognosis for the stock market and economy. The whole goal is to find high net payout yielding stocks and then harvest the benefits of huge dividends and stock buybacks. In a way, let the management teams earn their money while investors enjoy the spoils.
Naturally as an investment advisor with other active portfolios, I definitely have opinions on the market and economy but it just doesn't seem prudent to focus on them here. Anybody interested can view my 2012 outlook from my other models.
What I will say is that a lot of dividend only stocks appear overvalued. [See my article on Seeking Alpha: Dividend Stocks Priced For Perfection] Investors have jumped into them at the end of 2011 to chase yield at reckless abandon almost as if capital gains or losses are irrelevant. Those 4% dividends won't appear that attractive if the stock is down 4% for the year netting zero gains, but a nice little tax bill on those dividends for taxable accounts.
My thought is that high buyback stocks might shine this year as those purchases at lower prices finally begin paying off. Regardless this model invests in the highest yielding stocks whether dividend based or stock buyback focused. It lets the market and management teams tell us which option is cheap.
December was a normal month for trades with only one trade executed. Capital One Financial (COF) was sold as its yield never recovered from the financial crisis making it no longer appealing.
Though December was a slight positive month for both the portfolio and the benchmark, the portfolio had several stocks with large losses including DirectTV (DTV), Hartford Financial Services (HIG), and Accenture (ACN) all down more than 8%.
On the flip side, Home Depot (HD) and Bristol-Myers Squibb (BMY) had gains of nearly 8% to offset some of those large losses. The latter of which was sold on January 3rd which is typical for this model. A lot of times leaders will be sold as large gains lead to smaller yields. Again letting the market let us know when to sell a drug stock instead of attempting to figure out the complexity of the drug pipeline.
2011was a good year for this portfolio that solidly outperformed the S&P 500. While generally expecting a positive year for US equities in 2012, one can be assured that this portfolio will continue harvesting strong dividends and benefiting from stock buybacks regardless of an up or down market.
Disclosure: Long DTV, HIG, ACN, and HD. Please review the disclaimer page for more details.