This model was up 2.1% in September versus a 2.4% gain for the benchmark S&P 500. The model slightly under performed the market in September, which can happen in solidly positive months. The model is now up over 20% for the year.
As mentioned in the last several monthly reports, one goal of this model is to slowly trim the amount of positions back closer to 20 after reaching 26 a few months back due to mergers and partial positions. The position count remained at 24 at month end, but a partial position in Vale S.A. (VALE) was increased in order to fill out the position.
The Gap, Inc. (GPS) was sold, as the position became the largest one in the portfolio after an incredible gain by the stock. After a 100% gain for the year, the Net Payout Yields (NPY) declined to the point that Gap was no longer attractive for this model. Read our Seeking Alpha article for more details.
With the cash from the Gap sell, Motorola Solutions (MSI) was purchased to add to the technology sector in the model. Not to mention, Motorola continuously ranks high in the top NPY list produced each month.
The model ended the month with about 3% in cash. As additional positions are sold over the next few months, the cash will be rotated into increasing existing position sizes.
With the model up 2% for the month, very few stocks had meaningful negative returns for September. The weakest stocks were CSX Corp. (CSX) and Lorillard, Inc (LO).
CSX lost nearly 9% as reduced demand for coal has impacted the growth potential for railroad companies. Analysts continue to trim earnings estimates for the current quarter putting pressure on the stock. With only a 2.6% dividend yield, the stock doesn’t have the yield support to hold the stock up. Fortunately though, a decent buyback program will allow management to buy shares cheaper.
Numerous stocks had a good month. The biggest gain though came from Accenture (ACN), which jumped over 15% for the month. This gain came after the company reported strong bookings for the end of fiscal year 2012 providing support for a strong 2013.
The stock has surged to all time highs. Very few non-investors realize that such gains are being made in the stock market these days.
Other big gainers were Goldman Sachs (GS), Hartford Financial (HIG) and Time Warner (TWX). All of these stocks continued rallies from August and prior.
As October started, the market has become very comfortable with the ability to avoid a major financial collapse in Europe. The relentless headline risk that never comes to fruition has finally been pushed aside. Investors are slowly moving out of bonds and cash into dividend stocks.
The main risk for domestic markets and stocks continues to be the fiscal cliff and pending election. Stocks remain very complacent with the looming danger and little progress towards resolution. The most at risk stocks will be those of high dividend payers that have had an exceptional run. These stocks might face the headwinds of higher tax rates that pushed them down at the end of 2010.
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 drops due to election woes or the fiscal cliff not being resolved as expected.
Disclosure: Long all the positions mentioned. Please review the disclaimer page for more details.