Investment Report - June 2012: Net Payout Yields
This model was down 7.7% in May versus a 6.3% loss for the
benchmark S&P 500. In a rare occasion, the model underperformed the market
by more than 100 basis points. While disappointing, this does happen sometimes.
The benefit is that the stocks with large buybacks are able to purchase more
shares at these cheaper prices.
Trade
Only one major position change was initiated in May with the
addition of Ameriprise Financial (AMP)
in two transactions. The company has a spectacular net payout yield exceeding
15% with the dividend portion at nearly 3%.
The other major transaction was switching out of Phillips 66 (PSX) and back into a full
position on ConocoPhillips (COP)
after the spinoff back in April. After some research, ConocoPhillips provides
the higher guaranteed yields while Phillips 66 remained uncommitted on
buybacks.
A half position in Home
Depot (HD) was sold to reduce exposure to the home improvement sector since
both Home Depot and Lowes (LOW) had
become top holdings. Home Depot was selected to sell as it had the smaller
yield.
Bottom Performers
Not surprising with the weak stock market in May, but
several stocks lost over 10% for the month. Such a large drop is highly unusual
for this model made up of stocks averaging market caps over $20B.
The bottom performers were Lowes, Goldman Sachs (GS), Cisco
Systems (CSCO), and Accenture (ACN).
Some of the stocks had mildly disappointing earnings, but in general the losses
are due to these stocks being some of the higher beta ones in the model.
Conclusion
The European issues continue to hit the markets and threaten
to cause major disruptions for a third straight summer. It seems so unlikely
that the market would repeat the collapse of the last two years now that most
investors expect it. It usually isn’t that predictable.
Regardless of the markets, the average stock in this model
yields greater than 10% with the majority of yields coming from buybacks. This
provides huge support if the market remains weak.
Disclosure: Long all positions mentioned. Please review the disclaimer page for more details.
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