Out Fox The $treet

With dividends and high yields in vogue these days, investors need to be careful that they don’t overpay for these stocks. Some of the stocks have performed so well over the last couple of quarters that their share prices have surged 30-50% during that time period, which is odd for multi-billion dollar consumer goods and insurance stocks. This issue faces the investors in Campbell Soup (NYSE: CPB ) , Chubb (NYSE: CB   more » ) Disclosure: Long CB and TRV. Please review the disclaimer page for more details. 

Before the open today, Campbell Soup (CPB) announced a $1.55B deal to purchase Bolthouse Farms . The deal gives Campbell access to the rapidly growing market for packaged foods. The deal is expected to be accretive by $.06 in 2013 with the use of cash and/or debt to finance the purchase price. Founded in 1915, Bolthouse is a vertically integrated food and beverage company focused on developing, manufacturing and marketing proprietary, high value-added natural, healthy products. The company has leading market positions in fresh carrots and super-premium beverages in the U.S., along with a growing presence in refrigerated salad dressings. While an intriguing deal, it does bring up an interesting dilemma for our Net Payout Yields (NPY) model that owns Campbell Soup. The company expects to suspend the strategic share repurchase plan in order to use the cash to pay for this deal. Campbell was recently yielding around 11% with only 3.5% coming from d...

September was another decent month for the Net Payout Yields model with a return vs. benchmark of 3.46% - the portfolio was down 3.72% while the S&P500 fell 7.18%. Naturally on an absolute basis the results are disappointing, but this model is not designed to time the markets. The goal remains to outperform on the way down and remain even on the way up, in the effort to produce superior returns over time. For 2011, the model remains roughly 7.0% higher than the benchmark. As of the end of September, year to date the model was down 2.92% while the S&P500 fell 10.04%. Trades The model was inactive for the second month during September as the weak market increased the yields and hence the valuation attractiveness of most of the equities in the model. A few stocks though have recently reached new 52 weeks highs causing the yields to decline. For example, Bristol-Myers Squibb (BMY) has seen the dividend yield drop to 4% and without a buyback the Net Payout Yield (NPY) has reac...

August was a decent month for this model with an active return of 1.02% (Portfolio was down 4.66% versus the benchmark S&P500 down 5.68%). Naturally on an absolute basis the results are disappointing, but this model is not designed to time the markets. The goal remains to outperform on the way down and remain even on the way up producing superior returns over time. Trades After several semi active months of trading especially in May and July, August saw no trades executed. Typically the model trades more in good markets as companies outgrow yields making them less attractive to keep. While down markets normally lead to higher yields and a improvement in the decision for keeping a security in the model. Largest Weights Lorillard (LO) remained the largest stock in the model as the tobacco stock was able to post a nearly 5% gain in the month. CSX Corp (CSX) remained a top weight even though the stock plunged. The railroad operator remains tied to a cyclical business and was the ...

July was a negative month for the Net Payout Yields model on a relative basis. The model underperformed the S&P 500 by 0.36%, with a loss of 2.5% versus the 2.15% loss for the benchmark (Covestor calculations). On a three month basis, the model has outperformed nicely during a very weak period in the market. It outperformed the S&P 500 by 1.45%, with a loss of 3.78% versus the 5.23% loss for the benchmark (Covestor calculations).  Trades The model sold Boeing (BA) and bought Travelers (TRV) and Campbell Soup (CPB). As always, the moves are triggered by the decreases or increases in the Net Payout Yield of each stock with a bias towards limiting trades so stocks are not immediately removed or added based on a top 20 yielding list.  BA has a decent 2.7% dividend yield, but recently has eliminated buybacks. With normal yields in the model consistently adding up to greater than 10%, BA no longer fits into the requirements.  TRV has a solid 3.2% dividend y...