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Dividend Investor
Safe Income and Dividend Growth

April 24, 2024

Just when things were getting seriously ugly, the market started having a great week.

Interest rate disappointment is being replaced by earnings anticipation. The new earnings season came in the nick of time. After five straight up months, the S&P was having a terrible April. Last week was the worst week of the year so far and the index has fallen over 5% from the recent high.

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Earnings to the Rescue

Just when things were getting seriously ugly, the market started having a great week.

Interest rate disappointment is being replaced by earnings anticipation. The new earnings season came in the nick of time. After five straight up months, the S&P was having a terrible April. Last week was the worst week of the year so far and the index has fallen over 5% from the recent high.

The rally killer was interest rates. Higher-than-expected inflation and a better-than-expected economy led to a worse-than-expected interest rate prognosis. Investors had been expecting falling interest rates and a soft landing and were having trouble digesting the new expectation of no landing and continued high interest rates.

But then earnings season showed up and investors realized that there is still the artificial intelligence thing going on. AI is a huge catalyst that will boost earnings in the market’s largest sector for many quarters to come. Several of the “Magnificent Seven” stocks report this week. Who cares about interest rates when you have AI?

At least that’s the mood of investors right now. Hopefully, earnings and AI magnificence can save this rally from the interest rate bummer. We’ll see.

Even interest rate-sensitive stocks, which had been pummeled earlier this month, have been rallying this week. It could be that these stocks have already endured the current round of the interest rate storm. Meanwhile, these stocks are cheap and high-yielding with the worst probably over. The higher yield midstream energy stocks barely missed a beat and are all near the 52-week high as the energy sector remains strong.

Of course, the technology stocks Broadcom (AVGO) and Qualcomm (QCOM) will be in the spotlight and should benefit greatly if AI delivers another boost to the sector.

Recent Activity

April 3rd
Marathon Petroleum Corporation (MPC) – Rating change “BUY” to “HOLD”

April 10th
SOLD Intel Corporation (INTC)

April 17th
UnitedHealth Group Inc. (UNH) Rating change “HOLD” to “BUY”

Current Allocation

Fixed Income19.5%

High Yield Tier

Brookfield Infrastructure Partners (BIP – yield 5.8%) – This is a great company with a great business that has a long track record of outperforming the market. But it has had a miserable two years. Although BIPC is well off the lows, it’s still much closer to the 52-week low than high. I will be patient with BIPC and other interest rate-sensitive stocks because attitudes about interest rates may be at a low point for this year. The longer-term prognosis is still positive as rates have likely already peaked and Brookfield has some of the most defensive revenues possible and continues to deliver strong operational results. (This security generates a K1 form at tax time). BUY

Enterprise Product Partners (EPD – yield 7.1%) – This midstream energy juggernaut pulled back a little from the high in the recent market tumult but not much. The stock didn’t really go down so much as it just stopped making new highs. Energy stocks are still strong in the solid economy and in a good position as a hedge against increased tensions in the Middle East, as that will likely raise the price of oil and the energy sector. But this month has been mostly about interest rates. Rising rates will hurt almost all stocks, but EPD has shown a lot more resilience than most. The company should deliver solid growth this year and that massive distribution is extremely well supported. (This security generates a K1 form at tax time). BUY

Main Street Capital Corporation (MAIN – yield 6.0%) The Business Development Company didn’t get hurt at all in the rough market. The stock isn’t interest rate-sensitive because it has a higher yield, and its companies perform well in a strong economy. Although MAIN is currently selling near the 52-week high, it is still reasonably priced at less than 1.6 times book value, and most valuation measures are below the 5-year average. It has also shown resilience in the tough market over the last week. The safe and high yield pays dividends every single month with a strong possibility of supplemental dividends over the course of the year as well. BUY

ONEOK Inc. (OKE – yield 5.0%) – OKE barely missed a beat and is now within one dollar of the all-time high after consolidating a little after rising sharply in February and March. The midstream energy company stock is still in an uptrend that began about a year ago. Unlike most energy companies, OKE has eclipsed the pre-pandemic high. Meanwhile, the company is justifying the strong stock performance operationally. ONEOK reported a 42% increase in profits over last year’s quarter on higher LNG volumes and the contributions of the recent Magellan Midstream acquisition. The company also set ambitious guidance for this year. BUY

Realty Income (O – yield 5.8%) This legendary income stock is still floundering after a rough two years. But it has been going sideways since early February and not pulling back like many of its peers. Perhaps O has seen the worst also and is finally headed for better days. It is looking like O will be stuck in the mud until interest rates really move lower, which may or may not happen later this year. But the monthly dividend has been raised every year since 1969. The last two years have been among the worst in this stock’s history, which makes it dirt cheap ahead of an environment that will get better eventually. BUY

The Williams Companies, Inc. (WMB – yield 4.9%) Like EPD and OKE, this midstream energy company stock has been strong all year but a little weaker this month in sympathy with the overall market. But it’s still hovering close to the high. WMB broke out in the middle of February and the latest pause may be only a temporary setback as the energy sector is still strong. It’s a stable, high-yield stock and the company should deliver solid and dependable earnings in just about any economy. Business remains solid and not dependent on commodity prices. It pays a well-supported dividend, and recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.7%) This biopharmaceutical company stock seems to be getting back on track after a rough first half of April. It’s still down over 6% for the month after recovering over the past week. ABBV had broken out of the old range and made a new series of 52-week highs. It usually consolidates after a surge like that and the ugly market expedited things. But it’s still had a huge run since the end of November and is behaving quite well considering the Humira patent expiration. Management expects a return to moderate growth this year and robust growth next year. Investors are starting to price in the company turning the Humira corner on the way to a bright future. BUY

American Tower Corporation (AMT – yield 3.8%) AMT has had similar interest rate-related gyrations as other REITs. And lately, that has been a bad thing. But the stock had been acting badly even before the interest rate consensus turned ugly after the company cut the dividend by 4.7% to focus on debt reduction. But the current dividend is still higher on a year-over-year basis. The reversal of the fourth-quarter hike is a headscratcher that shouldn’t affect the stock’s trajectory over the course of the year. The exposure to technology and a strong niche business haven’t insulated AMT from the souring interest rates story. BUY

Broadcom Inc. (AVGO – yield 1.7%) – You know the technology sector has hit a rough patch when AVGO takes a hit. It’s down almost 12% in less than two weeks. But that is to be expected when a stock as hot as AVGO has been hits a down market. It’s still up over 13% YTD and 97% over the past year. The stock tends to surge, then bounce around for a while, and surge again. When the AI excitement kicks up again the stock will probably have another run. If there is more weakness over the next week I will consider buying back the other half position. HOLD

Digital Realty Trust, Inc. (DLR – yield 3.6%) It’s been an up-and-down ride with this data center stock, but mostly up. It did get slapped around a little since the beginning of March. But it seems to be rediscovering its mojo as earnings excitement takes hold. DLR can get knocked around in the short term with the technology sector or the interest rate prognosis, but the outlook is still very good. The data centers will benefit from increasing AI spending, providing Digital with an additional growth catalyst that could last for years. Yet, DLR is still well below the all-time high made at the end of 2021 before the inflation bear market. BUY

Eli Lilly and Company (LLY – yield 0.7%) – LLY appears to be in kind of a holding pattern until there’s more news. It’s been going sideways since the middle of February. But going sideways is encouraging after the massive couple of years this stock has had. But good news is probably coming. Lilly again killed on earnings and guided higher for 2024. The weight-loss drug is a monster and looks like a mega-blockbuster, and the Alzheimer’s drug should get the nod in the next few months. HOLD

McKesson Corporation (MCK – yield 0.5%) – MCK has gone sideways for a few weeks. But this stock is still very much in an uptrend that began in early 2023. MCK just continues to forge quietly higher while no one seems to notice. Earnings were stellar last quarter and McKesson raised guidance for 2024. The company reports first-quarter earnings in early May and should get another boost. The pharmaceutical supply chain goliath dominates a market that grows all by itself because of the aging population. BUY

Marathon Petroleum Corporation (MPC – yield 1.7%) – This refining company stock has definitely cooled off after being on fire for the first three months of this year. The surge was a little silly, which is why it was downgraded to a HOLD shortly after. But even after pulling back over 10%, MPC is still up over 30% YTD. It may not be done because it still has a lot going for it. The economy is solid, and profits are booming. Plus, tensions in the Middle East are likely to keep oil prices elevated with a chance for a big spike if things get uglier. HOLD

Qualcomm Inc. (QCOM – yield 2.1%) After rallying strongly for five months, QCOM came down more than 10%. Semiconductor stocks fell into correction territory, down 10% or more, this month on concerns about demand over the next several quarters. The chip sector can be very volatile from month to month and quarter to quarter as demand often fluctuates. But Qualcomm has perked back up this week. The company reports earnings in a couple of weeks and that report will likely be the main determinant of the stocks’ near-term direction. BUY

UnitedHealth Group Inc. (UNH – yield 1.5%) UnitedHealth reported earnings last week that provided some good news for a change. The company soundly beat expectations with an 8.6% revenue rise and a better than 10% increase in adjusted earnings from last year’s quarter. The company also issued strong guidance. It was a relief to the market after recent troubles, and the stock has jumped over 12% in trading since the report.

UNH had been reeling after the cyber-attack caused a huge disturbance in the company and the industry. But UnitedHealth appears to have absorbed the costs while maintaining strong growth in the quarter and future quarters. With recent troubles behind it, the company has solid and defensive earnings and is well positioned going forward. That’s why the rating was again raised to a BUY last week. BUY

Visa Inc. (V – yield 0.8%) This payment processing global goliath has cooled off after about a five-month rally. V had been making a series of new highs all year but has pulled back since late March. A consolidation had to happen eventually, and it’s still in an uptrend that began in the fall of 2022. The recent better-than-expected economic news bodes well for Visa. V was slow to recover from the pandemic because the global economy lagged. But now it’s making up for lost time. The company reported upbeat guidance through 2024 last quarter and reports first-quarter earnings after the close on Tuesday. HOLD

Safe Income Tier

Alexandria Real Estate Equities, Inc. (ARE – yield 4.3%) – Things turned ugly again for interest rate-sensitive stocks, although things are improving this week. This one-of-a-kind life science property REIT continues to be at the mercy of the latest interest rate thinking, along with most other conservative dividend stocks. Since the recent leg of interest rate consensus has been negative, ARE has taken a hit. But I’m generally positive going forward as interest rates, although appearing unlikely to fall as much as previously expected, have likely already peaked. ARE has consistently grown revenues and profits and it reports earnings after the close on Tuesday. BUY

NextEra Energy (NEE – yield 3.2%) – As an interest rate-sensitive utility, you would think NEE would have gotten hammered earlier this month. But it didn’t. NEE is up for April and up nearly 20% since the beginning of March. That’s a good sign and indicates the stock is already beaten down with less downside than many other stocks at this point. I suspect the worst is over for this stock. NEE had been a superstar performer before inflation and rising interest rates. It provides both safety from its best-in-class regulated utility business and growth from its considerable clean energy business. BUY

Xcel Energy (XEL – yield 4.0%) – The alternative energy utility has been slowly recovering from the price shock last month after it was reported that Xcel could be held liable for damages for the raging Texas wildfire. The scope of the damage is still not known. However, the company reports first-quarter earnings later this week and should provide better insight into the situation. NEE was downgraded to a HOLD until there is more clarity on the matter. The stock has certainly stabilized, and it is encouraging that XEL has continued to move slowly higher even in a rotten market. HOLD

USB Depository Shares (USB-PS – yield 5.8%) – This preferred stock has just weathered a strong interest rate storm and has still returned about 15% since being added to the portfolio. I believe it is unlikely that rates eclipse the high of this cycle. Even if they do, this security can handle it well. It’s also quite possible that rates fall from here and the stock behaves very well. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 4.9%) – Ditto for VCLT. It doesn’t like rising rates. But that’s okay unless rates rise to new levels beyond what has been seen in this cycle. I believe that VCLT is still well positioned after the worst two years for fixed income ever. BUY

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
close 04/22/24
Total ReturnCurrent YieldCDI OpinionPos. Size
Brookfield Infrastructure Ptnrs. (BIP)3/29/1924Qtr.1.626.75%2836%5.80%BUY3-Feb
Enterprise Product Partners (EPD)2/25/1928Qtr.2.017.14%2950%7.10%BUY1
Main Street Capital Corp. (MAIN)3/13/2446Monthly2.886.24%486%6.00%BUY1
ONEOK Inc. (OKE)5/12/2153Qtr.3.967.47%8086%5.00%BUY1
Realty Income (O)11/11/2062Monthly3.085.00%532%5.78%BUY1
The Williams Companies, Inc. (WMB)8/10/2233Qtr.1.95.80%3929%4.91%BUY1
Current High Yield Tier Totals:6.30%34.60%5.80%
Dividend Growth Tier
AbbVie (ABBV)1/28/1978Qtr.6.27.90%168177%3.69%BUY1
American Tower Corporation (AMT)1/10/24209Qtr.6.83.30%172-17%3.80%BUY1
Broadcom Inc. (AVGO)1/14/21455Qtr.214.60%1224196%1.70%HOLD2-Jan
Digital Realty Trust, Inc. (DLR)7/12/23118Qtr.4.884.10%13619%3.60%BUY1
Eli Lilly and Company (LLY)8/12/20152Qtr.5.23.40%731404%0.70%HOLD2-Jan
McKesson Corporation (MCK)10/11/23457Qtr.2.480.50%52716%0.50%BUY1
Marathon Petroleum Corp. (MPC)11/8/23143Qtr.3.32.30%19840%1.70%HOLD1
Qualcomm (QCOM)11/26/1985Qtr.3.23.80%160110%2.10%BUY3-Jan
UnitedHealth Group Inc. (UNH)4/12/23521Qtr.7.521.40%491-4%1.50%BUY1
Visa Inc. (V)12/8/21209Qtr.2.081.00%27233%0.76%HOLD1
Current Dividend Growth Tier Totals:3.20%64.10%2.00%
Safe Income Tier
Alexandria Real Estate Equities (ARE)12/13/23126Qtr.5.084.00%119-4%4.30%BUY1
NextEra Energy (NEE)11/29/1844Qtr.1.873.80%6568%3.10%BUY1
U.S. Bancorp Depository Shares (USB-PS)10/12/2219Qtr.1.136.10%1913%5.80%BUY1
Vanguard LT Corp. Bd. Fd. (VCLT)1/11/2380Monthly3.64.50%74-2%4.80%BUY1
Xcel Energy (XEL)10/1/1431Qtr.2.086.70%55142%4.00%HOLD1
Current Safe Income Tier Totals:5.30%55.30%4.40%

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Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.