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Dividend Investor
Safe Income and Dividend Growth
This year’s strong market has surprised most pundits. Hopefully, the good times last. Anything is possible.

I don’t want to get into the business of trying to predict what the market will do over the rest of the year. Even if you get things right, some stupid headline can come out of nowhere and change all the math. There’s a much better way than market timing.

Buying good stocks cheap is perhaps the best way to assure good returns over time. Different market sectors go in and out of favor all the time. Technology stocks were out of favor at the beginning of this year. No one wanted energy stocks at the beginning of 2021.

You may not think there are a lot of bargains anymore. Sure, it’s a bull market for the indexes. But it is still the darkest days of the bear market in certain places. Defensive stocks in utilities and other sectors are wallowing near the lows of last October while the indexes are whooping it up.

In this issue, I highlight three defensive portfolio positions. These stocks are all selling near 52-week lows and, in some cases, multi-year lows. But operational results at these companies have been as strong as ever. And all these currently out-of-favor stocks have long histories of superstar performance that blows away the returns of the overall market.

Forget the Fed, and inflation, or the velocity of the landing. Buying some of the very best dividend stocks on the market near the lowest valuation at which they ever sell should be a money-making strategy regardless of what happens with all that other stuff.
The market looks great right now. Inflation is falling fast, the Fed is just about done hiking rates, and there is no recession in sight. It looks like we will get through the steepest rate-hike cycle in decades without much economic pain.

But nothing is certain. Inflation could rise again. The Fed may keep rates high for longer than the market expects. The economy may turn south in the quarters ahead. There could be more trouble with bank failures or the war in Ukraine. S&P earnings have been contracting for three straight quarters.

We’ll see if the market can add to the 30% rally from the low, or if it turns south again. A reasonable argument can be made for either scenario. Instead of trying to guess the possible short-term gyrations, let’s look to investments that should be longer-term winners no matter what.

In this issue, I highlight a stock that diversifies the portfolio into the consumer space. The company operates in an incredible niche market that has provided earnings growth for 31 consecutive years and enabled the stock to outperform the market in every measurable period over the last 15 years. The company is positioned for strong growth in the years ahead and the stock has a long track record of delivering stellar returns in all kinds of markets.
Artificial intelligence (AI) is a game-changer that will usher in the next wave of technological advancement that will have a dramatic positive impact on certain stock prices for years to come.

The phenomenon got a huge shot of adrenaline when Nvidia (NVDA) blew away earnings estimates, citing greater demand for AI technology far sooner than expected. It’s like the opening gun has sounded for the new craze.

The efficiency and cost-saving potential for businesses are massive. Companies can’t afford to fall behind. For many businesses, rapid AI adaptation is a matter of survival. There is a stampede to apply cutting-edge AI technology to businesses before the competition. Companies that provide AI-enabling products and services will benefit mightily for years to come.

In this issue, I highlight the great income stock of a company that will surely benefit from the race to adopt AI. The price is still very reasonable, and it pays a high dividend yield. There is a window of opportunity after the first wave of price surges levels off before the longer-term price appreciation sets in.
Despite all the current issues, the market is doing gangbusters.

The S&P 500 is up over 12% YTD. And the year isn’t even half over. The index has also rallied more than 20% from the bear market low in October. That’s the definition of a bull market.

But things aren’t as rosy as they seem. This is the thinnest rally I’ve ever seen. Just ten stocks account for the entire YTD rise in the S&P 500 index. The other 490 stocks have collectively gone nowhere.
Energy stocks have been by far the best-performing market sector over the last couple of years. They went from worst to first in dramatic fashion. And the good times may be just beginning.

The industry has had very low capital spending and expansion in recent years. Crude oil inventories have fallen below the five-year average and are likely headed far lower. OPEC has pledged dramatic production cuts to push prices higher. There is also a high degree of geopolitical risk. In fact, Goldman Sachs analysts are forecasting oil prices to get back to $95 per barrel before the end of this year.

The fundamentals are in place for prices to average a lot higher than they are now over the next few years. And that will lift stock prices. Stocks are also cheap, have among the best dividend yields on the market, and tend to perform well during times of inflation.

This issue highlights one of the highest-growth energy companies on the market. It has the ability to grow production by double digits for many years to come and at very low cost.
So far, this has been a positive year for the market. But an enormous amount of uncertainty remains.

The painful high inflation/hawkish Fed conundrum that caused last year’s bear market appears to be ending. But a high risk of recession is taking over. It will be difficult for stocks to rally into the next bull market without knowing the timing, severity, or duration of a possible recession.

Inflation could remain sticky. A recession could hit in any of the next three quarters. A recovery may be lame when it finally arrives because the Fed may have to keep interest rates high. We don’t know if six months from now we will face more inflation, a recession or even stagflation.
Inflation has come down. But in the past, when inflation stayed this high for this long, it took about a decade to get rid of it. That’s why the inflation rate averaged 7.25% in the decade of the 1970s and 5.82% in the 1980s.

Once that inflation genie gets out of the bottle, it has historically been a long ordeal to get it back in. Higher inflation and interest rates may persist for several years to come. That’s a different economic situation than we have faced in a long time. And it is changing the investment landscape.

As investors, we need to invest in a way that not only keeps pace with inflation but exceeds the rate of inflation in order to actually grow a nest egg in real terms. In this issue, I highlight two portfolio dividend stocks that have a unique ability to thrive during inflation beyond most dividend stocks.
The market is at a crossroad.

It is possible that we could get through this cycle soon and without a recession. The market could rally to new highs without much more trouble. On the other hand, a more hawkish Fed or deeper economic downturn than currently anticipated could cause another market plunge.

You could just bet on one scenario and hope for the best. But there might be a better way to navigate these waters. Instead of gambling on a certain outcome, we can buy stocks that should thrive in both bull and bear markets.

In this month’s issue, I highlight four current portfolio positions that are “all-weather” stocks. These stocks should do just fine if the market takes off and doesn’t look back in a soft landing. But they should also perform relatively well in case a more ugly scenario unfolds. They should be solid in almost any kind of market environment and pay you a great income in the meantime.
Sure, it was a tough year for stocks. But 2022 was the worst year ever recorded for bonds.

The benchmark 10-year Treasury lost more than 15% in 2022, the worst calendar year performance ever recorded since it started being tracked in the 1920s. The 10-year + Treasury Bond Index lost 29.45% for the year, also the worst performance on record.

But the disastrous year creates an opportunity. Last year seems to have squeezed many years of poor performance into one. Now bonds actually pay decent interest again. And every negative year for bonds ever recorded has been followed by a year of positive returns.

In this issue, I highlight a long-term corporate bond fund. It allows access to some of the highest yielding investment grade bonds in the last 15 years while also providing a monthly income. The fund is very likely to have a positive total return for the year, and perhaps very positive, at a time when the stock market is highly uncertain.
It is reasonable to expect a significant market turnaround sometime next year. The market trends higher over time. And bear markets always give way to bull markets. Things should get a lot better in 2023. But there is a strong chance they get worse first given the current uncertainties regarding inflation, the Fed, and a recession.

Of course, a recovery and new bull market should reward the short-term pain handsomely over time. As a longer-term investor, which dividend investors should be, it should just be short-term noise on the way to long-term profits. But we can do better than just riding out the storm. We can exploit another possible market downturn to our advantage.

It’s a fact that many stocks that get hurt the worst in a bear market are the first to recover when the market turns. In this issue, I highlight a phenomenal cyclical stock that had been a market superstar but has been clobbered in this bear market. The stock is targeted at a low, low price that may be reached if the market falls to a new low. It could provide incredible upside leverage ahead of a market recovery.
The Fed has raised the Fed Funds rate six times this year to combat inflation and the last four times at a 0.75% clip. The current 4% rate is the highest in well over a decade. But inflation hasn’t budged even after the rate hikes, a shrinking GDP, and a bear market.

At the November meeting, the Fed Chairmen stated that the previous 4.5% to 5.0% Fed Funds goal no longer applies. It will have to go higher. The U.S. economy is resilient, but it will eventually give way to the forces aligned against it. It is almost certain that there will be a recession in 2023.

Meanwhile, for the first time since forever, you can get investment-grade, fixed-rate investments that pay 5% or even 6%, for now. But recessions put downward pressure on longer interest rates as loan demand dries up.

In this issue, I highlight a rare opportunity to lock in a high fixed rate while it lasts and add balance and diversification to the portfolio. Let’s not miss it.
In an otherwise miserable year of nonstop inflation, recession, the Fed, and a bear market, an opportunity is emerging for opportunistic investors. Attractive rates on conservative fixed-rate investments have reemerged. There is a chance to lock in rates not seen since the decade before last.

In this issue, I highlight an investment grade rated fixed income security that currently yields nearly 6%, and the income offers tax advantages to boot.
This market is officially flirting with ugly. The S&P is now down about 7% from the 52-week high and not far from correction territory, down 10% from the high.

The selling intensified over the last week after the Fed struck an unexpectedly hawkish tone at last week’s meeting. The gist of the Fed’s message is that rates may well go higher and will stay higher for longer. The statement pours cold water on the notion that rates will be cut in the near future and reinforces the realization that higher rates are here to stay.
This market is officially flirting with ugly. The S&P is now down about 7% from the 52-week high and not far from correction territory, down 10% from the high.

The selling intensified over the last week after the Fed struck an unexpectedly hawkish tone at last week’s meeting. The gist of the Fed’s message is that rates may well go higher and will stay higher for longer. The statement pours cold water on the notion that rates will be cut in the near future and reinforces the realization that higher rates are here to stay.
The surprisingly strong market of 2023 has been sputtering. The S&P 500 moved lower in August and is lower so far in September. But there’s no alarming selloff. The index is 3.6% lower than it was at the end of July. It’s mostly just a pause so far.
The summer is over. The post-Labor Day market has arrived. What can we expect?

Historically, September is the worst month for the market. Sobered up investors back from vacation tend to be cranky when they take a fresh look at things. But seasonality doesn’t always apply. And there are some reasons for optimism.
After a strong first seven months of the year, stocks retreated in August. Is this a normal consolidation or the start of a bigger correction after Labor Day?

Anything is possible. On the one hand, such pullbacks are normal and healthy after a strong run higher in the market. The economy still appears nowhere near a recession. There is still an enormous amount of cash on the sidelines. It’s near the end of the rate hike cycle. And artificial intelligence is triggering a new tech boom.
After a fabulous first seven months of 2023, stocks are pulling back so far in August. What can we expect from here?

A pullback or consolidation in the market at this point is normal and even healthy. And that’s what this will have been if the market gets back on track. There are also two potential catalysts to reignite the rally this week: Nvidia (NVDA) earnings and Jackson Hole.

It was the May Nvidia earnings report that triggered the artificial intelligence tech rally that added another leg to the bull market. Another positive earnings report could reinvigorate technology stocks after a rough August so far. The Fed will also deliver comments this week at the annual Jackson Hole thing. Dovish remarks would be positive for the market.
The rally is floundering in August.

A pullback of sorts isn’t unusual or unexpected, especially in the waning days of summer. Many investors are focused on squeezing in more summer before it slips away and they aren’t paying attention to the market.
The market continues to ride the soft-landing high. The S&P 500 returned more than 3% in July and is now up 19% YTD and within just 4% of the all-time high.

The bullish mood is brought on by the fact that the miserable inflation/Fed conundrum that drove stocks into a bear market last year is ending. And it appears that we will not have to endure a recession. Even though S&P earnings are falling for the third straight quarter, investors are bullish about the future.
Let the good times roll. Inflation is collapsing. The Fed is almost done hiking rates and likely to turn distinctively more dovish in the 2024 election year. There is no recession and no signs of recession. Stocks are thriving. And it’s summer.
The good year is continuing. The market rally is broadening. And pundits increasingly have positive things to say about the second half of the year.

Artificial intelligence isn’t the only mania capturing the imagination of investors. The soft-landing belief is also widespread. Investors see inflation falling fast, the Fed nearly done hiking rates, and no recession. It looks like we can get through this rate hiking cycle, the steepest in decades, without much economic pain.
The S&P 500 delivered an impressive 16% return in the first half. Can the good times continue in the second half?

A big part of the latest surge higher has been the artificial intelligence (AI) excitement. After Nvidia (NVDA) blew away expectations citing far greater demand for AI technology, the market-leading tech sector caught fire. But returns were impressive even before then as the market is sensing a soft landing.
Things are looking up. Inflation is falling. The Fed is almost done hiking. And there is no recession to be found.

The market has surprised just about everybody in the first half of the year. The S&P had risen 13% as of days before midyear and over 24% from the October low. This new bull market is not what was expected.

After an abysmal 2022, most pundits were expecting more ugliness in the first half of this year and a recovery somewhere in the second half. But investors sensed that we could get through this Fed rate hiking cycle with minimal pain. Then artificial intelligence (AI) gave stocks a further boost.
Special Bulletin - Audio
Early Tuesday morning Biopharmaceutical giant AbbVie (ABBV) announced plans to acquire Ireland-based Allergan plc (AGN) for $63 billion. The market hates the deal and AbbVie stock plummeted over 16% on the day. Let’s take a look at the deal and see what’s going on.
As you noticed, yesterday’s issue of Cabot Dividend Investor was jointly edited by Chloe Lutts Jensen, for whom it was the final issue, and Tom Hutchinson, for whom it was the first.
One of our positions reported middling third-quarter results this morning, and the stock opened 6% lower, although it’s already making up some of those losses. As a result, we’re moving it to Hold.
Yesterday brought widespread carnage to the markets, which has carried on to today, but some tech stocks have found support. For now we are going to be watching and waiting, but I want to comment on three current holdings.
One of our positions fell nearly 7% after reporting earnings Friday, and the stock started today with further losses. With the lack of support, it means more downside is the most likely near-term scenario here and it’s time to sell.
Markets pulled back yesterday and the Dow, S&P 500 and Nasdaq all closed lower. A couple of our holdings were hit particularly hard, so I wanted to send a quick update on two of our positions even though I’m not recommending any action.
One of our stocks reported EPS that missed estimates and lowered its guidance range this morning, and the stock opened 4% lower. We’ll look for an opportunity to unload the rest of our shares over the coming few days.
Given the shakiness of the broad market, we want to be reducing our exposure to weak stocks today. As noted in yesterday’s update, we’re going to reduce risk today by taking partial profits in one of our positions.
Markets ended last week on a sour note as the U.S. and China imposed tit-for-tat tariffs and Facebook continued to drag tech stocks lower. The major indexes all declined more than 5% for the week, their worst weekly performance in over two years. I’m moving two of our most affected stocks to Hold today.
After a half-hearted mid-week bounce, the stock market had another rough day yesterday. The S&P 500 fell almost 4%, and is now 10% off its all-time high. That means we’re now officially in a correction, although we didn’t really need yesterday to tell us that.
Our latest recommendation, pulled back sharply after reporting earnings Friday morning.