Investment Report - March 2012: Net Payout Yields
This model gained a solid 4.9% in February versus 4.1% for
the benchmark S&P 500. As typical of this conservative model it tends to
gain alongside the market on the way up and outperform during periods of
weakness.
Trades
February was a slightly more active month for this model
with 4 trades mainly switching out of two positions with reduced yields for two
positions with attractive yields.
Gilead Sciences
(GILD) and Banco Itau (ITUB)
were both sold during the month.
Gilead Sciences is a leading biotech firm that greatly
reduced their stock buyback program in order in purchase Pharmasset. This
virtually eliminated the net payout yield as the company confirmed on the Q4’11
earnings call leading us to selling the stock as it surged on earnings. See blog
post for more details.
This was very fortunate for the model as either luck or the reduction
of the buyback foretelling weakness ahead, the company announced disappointing
drug information just a couple of weeks later leading to a big drop in the
stock price.
Banco Itau is a leading bank in Brazil that has failed to
keep the yield at an attractive level. In addition, the model decided to reduce
the risk of being exposed to a emerging market bank, even though, the total
beta of this model was below that of the benchmark S&P 500.
ConocoPhillips (COP)
and Kohl’s (KSS) were both bought
during February to replace the previously mentioned low yielding stocks sold
during the month. Remember that the goal is this model is to stay virtually
fully invested (no more than 5% cash) at all times.
ConocoPhillips was purchased with a yield consistently
hitting the 14-15% range anchored by a solid 3.4% dividend yield. It was also
the top yielding basic materials stock providing for diversification and
reduced volatility in the model.
Kohl’s as a leading discount retailer has one of the highest
yields topping out over 20% recently. As with ConocoPhillips, most of the yield
comes from a large buyback program, but the stock has an attractive 2.7%
dividend yield as well.
Conclusion
The market in general remains in a uptrend that likely will
lead to multi year highs and possibly eventually to all time highs in the
S&P 500. This model will remain fully invested to capture as much upside as
possible while protecting against any major downside from owning solid large
cap stocks with high yields.
Disclosure: Long COP and KSS. Please review the disclaimer page for more details.
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