After an initial slow start back in November of 2010, the Net Payout Yields model has had solid results while on the Covestor platform over the last 18 months. In fact, since January 1, 2011 the model is up 18.7% versus the 8% gain of the benchmark SP500 (not including dividends).
Some other interesting stats provided by Covestor in the Risk Metrics section is that the model is less volatile than the SP500 while obtaining higher sharpe and sortino ratios. These are all measures of risk suggesting this model is less risky than the major average while obtaining higher returns.
In general, the model invests in large cap stocks with a $10B+ market caps that have the highest Net Payout Yields which is the combination of dividends and net stock buybacks. The market largely focuses on dividends completely ignoring the benefits of the combination.
While the market is currently focusing on stocks with dividend yields in the 3-4% range, this model consistently finds stocks yielding over 10%. The most recent purchase of Ameriprise Financial (AMP) had a yield of over 14%. The stock is mostly ignored by the market since the dividend yield only amounts to 2.5%. The buyback yield of over 10% has no real focus in this market.
The best asset to this model is that it requires limited trades based on non-emotional data. As an example, Home Depot (HD) and Lowes (LOW) wouldn't normally have jumped out as great investments last year, but both stocks showed up with high Net Payout Yields. This signaled to us that cash on hand and future cash flows were much stronger than the existing value of the stock suggested. Hence, both companies were able to return more than 10% to shareholders at that point. Since October, both stocks have led the markets higher with most investors missing the rally.
For more details on investing in this model please review the Stone Fox Capital website or contact Covestor directly via clicking on the graph below.
Stone Fox Capital Investment Advisor
Disclosure: Long AMP, HD, LOW. Please review the disclaimer page for more details.