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.
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.
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.
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.