Cabot Dividend Investor Issue: June 11, 2025

Bank on Dividends in an Unpredictable Market

Stocks have made an impressive recovery from the April tariff swoon. The S&P 500 is now within just 2% of the all-time high. But now what?

The initial fear that tariffs would cause high inflation and ruin the economy has subsided. Investors have decided that the tariff situation won’t lead to disaster. And stocks have been repriced accordingly. But tariff uncertainty remains. Big deals have not been forthcoming. It might be a while before tariff uncertainty is resolved and stocks can celebrate the end of the issue.

Then there’s the economy. There had been much fear and consternation that tariffs would wreck the economy. Even after tariff uncertainty, the economy and the market would struggle with the economic fallout. But the economy is proving to be much more resilient than previously expected. The job market is indicating a still-solid economy. But that also means that the Fed is less likely to cut rates.

The recent market overreactions have been reversed. The market index is perched near the high. It’s tough to envision a catalyst that will drive a sustained rally anytime soon. Sure, there could be good tariff news. But uncertainty is likely to linger for a while. The economy is okay but not great. A recession is unlikely, but growth is still slowing.

Anything can happen, of course. But it’s time to acknowledge the possibility that the market could go sideways for the rest of the year and even beyond. We just had two straight years of 20%-plus returns in the S&P 500 for the first time in nearly three decades. Artificial intelligence isn’t driving the market like it used to. It’s a good time to focus on stocks that can thrive in a sideways market.

Dividends are king during times like this. Dividends roll in no matter what the market is doing or what’s going on in the world. Dividend income has accounted for a substantial portion of total market returns over time, about 34% since 1940. But dividends account for a much higher percentage of returns during periods of flat markets. While overall stock prices are stuck in the mud, the cash register keeps ringing.

Dividend stocks also tend to gain popularity among investors when they’re the only game in town. And that often boosts the prices. It’s empowering to have stocks providing positive results while most of the rest of the market stagnates.

Maybe it won’t be a flat market. It’s always tough to predict the near-term direction of the market. But it is well worth having something in the portfolio that can thrive amid that possibility. In this issue, I highlight one of the very best income stocks on the market. It has a strong recent track record and is poised to thrive in the quarters ahead.

What to Do Now

It’s tough to pick a horse in this environment. The market is back up near the high while tariff uncertainty persists, and the economy is still in question.

I like to rely on megatrends during times like these, namely the aging population and the technological revolution. But the healthcare stocks, including Eli Lilly (LLY), AbbVie (ABBV), and McKesson (MCK), are currently rated “HOLD” because drugs are likely to be targeted for tariffs soon. Technology companies Broadcom (AVGO) and Constellation Energy (CEG) have already had huge runs higher and appear to be stalling.

It’s unclear whether defensive or cyclical companies will be better performers over the rest of the year. Over the last week, cyclical stocks including FS KKR Capital (FSK), Main Street Capital (MAIN), Ally Financial (ALLY), and Toll Brothers (TOL) have moved higher following the better-than-expected jobs report. But the jury is still out on the economy. There still isn’t enough evidence to cast a lot with one or the other, defensive or cyclical.

There are currently three portfolio stocks that I’m comfortable buying right now. Those include midstream energy companies Enterprise Product Partners (EPD) and The Williams Companies (WMB) and the most recent portfolio addition, Oracle Corporation (ORCL). That stock has a strong catalyst for growth, good momentum, and earnings coming out later this week.

Recent Activity

May 14
Purchased Oracle Corporation (ORCL) - $162.95
McKesson Corporation (MCK) – Rating change “BUY” to “HOLD”
SOLD UnitedHealth Group, Inc. (UNH) – $308.01

May 28
NextEra Energy (NEE) – Rating change “BUY” to “HOLD”

June 11
Broadcom Inc. (AVGO) – Rating change “BUY” to “HOLD”

Featured Action

Buy Enterprise Product Partners L.P. (EPD)

Yield: 6.8%
Payout Ratio: 71%
Years of Dividend Increases: 28

Enterprise Product Partners is one of the largest midstream energy companies in the country, with a vast portfolio of service assets connected to the heart of American Energy Production. It is connected to every major U.S. shale basin and 90% of American refiners east of the Rockies and offers export facilities in the Gulf of America.

As a midstream energy company, Enterprise is not reliant on volatile commodity prices because they generate about 80% of revenue from fees for storing, processing, and transporting oil and gas. They collect tolls on the U.S. energy highway at a time when production is likely to increase substantially. Enterprise is a huge player with 50,000 miles of pipeline, 300 million barrels of liquid storage, 20 deepwater docks, 53 natural gas processing trains, and 26 fractionators.

EPD has performed very well over the last several years. Over the past three calendar years (2022, 2023, and 2024), EPD returned 78% with distributions reinvested compared to a return of just 28% for the S&P 500 over the same period. The MLP provided triple the market returns with just a fraction of the volatility. EPD has a beta of just .65, meaning it is a third less volatile than the overall market.

The future is shaping up to be even better. Not only is Enterprise expanding capacity at significant levels. It’s expanding in the highest-growth area of the energy market, natural gas liquids (NGLs). The partnership is building out gas and NGL processing facilities and pipelines from the booming Permian basin to boost capacity on routes to the Gulf Coast. It’s also expanding its export facilities.

The thing that jumps out about EPD is the huge 6.8% distribution yield. MLPs tend to have higher yields because they are required to pay out the bulk of earnings in the form of distributions. But I’ve never seen a yield this high that’s this safe. EPD has raised the payout every year for the last 28 years. It has investment-grade credit ratings, retains cash for expansions, and has a stellar 1.7 times coverage ratio with cash flow. That’s among the highest in the industry.

The dynamics of the energy industry should also be highly favorable to midstream energy companies in the years ahead. The global energy industry has had many years of capital underinvestment that will continue to limit supply amid ever-rising global demand, especially for natural gas. The new administration is about “drill baby drill.” Oil and gas production should boom. The administration is also removing regulatory restrictions and highly encouraging more NGL exports.

The distributions will continue to flow in any kind of market. And the price has also proven resilient amidst inflation, rising interest rates, and a slowing economy.

Portfolio Recap

AGNC Investment Corporation (AGNC – yield 15.6%) – The mortgage REIT has been acting a little better lately, but things still haven’t been great. It came off two rotten years when inflation and interest rates rose. That has stopped. But AGNC is still sort of aimlessly bouncing around. However, it is likely that the Fed will lower the fed funds rate this year, which will reduce funding costs. It will also help with the net asset value (NAV), which tends to determine the share price direction. It looks like better days are ahead, and AGNC pays a huge yield while you wait. HOLD

AGNC Investment Corp. (AGNC)
Next ex-div date: June 30, 2025

Brookfield Infrastructure Partners (BIP – yield 5.1%) – BIP has made a solid move up from the recent bottom since early April. The price is now near the highest level achieved earlier this year. BIP should have been set up for strong relative performance in the recent market volatility. The problem is that interest rates spiked higher at the same time, which is bad for an MLP because it increases borrowing costs and narrows profits. But it has generated traction of late and is now up 7% YTD. And the business is sound. It’s entirely possible that BIP can make a run toward the 52-week high and beyond, especially if interest rates trend lower from here. (This security generates a K1 form at tax time.) HOLD

Brookfield Infrastructure Partners (BIP)
Next ex-div date: September 30, 2025, est.

Cheniere Energy Partners, L.P. (CQP – yield 5.8%) – This NGL export partnership had been a stellar performer until the April swoon in the market. The price has been bouncing around for the last two months and hasn’t recovered to the levels from before the tariff trouble. It’s likely that there is concern about the global economy and demand for natural gas. However, relative natural gas demand remains strong, and exports from Cheniere are rising. Cheniere has pledged to double NGL production, and new facilities are coming online that should boost the bottom line this year. CQP is being held back by tariff and economic fears right now. But that situation should be temporary, and the stock pays you well to wait. (This security generates a K1 form at tax time.) HOLD

Cheniere Energy Partners (CQP)
Next ex-div date: August 10, 2025, est.

Enterprise Product Partners (EPD – yield 6.7%) – The midstream energy partnership price is still below the level before April, but EPD has still returned 5% YTD. But EPD was near the 52-week high before the trouble started and is coming off two consecutive stellar years. The trend should be rising oil and gas production and strongly increasing NGL exports, an area where Enterprise has become an increasingly important player. Enterprise has two major projects coming online this year, representing $6 billion in investment that should grow the top and bottom lines. The distribution coverage is still a stellar 1.7 times. (This security generates a K1 form at tax time.) BUY

Enterprise Product Partners (EPD)
Next ex-div date: July 31, 2025, est.

FS KKR Capital Corp. (FSK – yield 13.1%) – Prospects for this Business Development Company (BDC) are improving. FSK had been held back by fears about a slowing economy and possible recession. The BDC has a portfolio of small businesses, which tend to be cyclical. But the recent good jobs report is feeding a perception that the economy will be okay. The return is slightly positive YTD in a year that has not been a good one so far for most cyclical stocks. Meanwhile, it pays that massive yield that should be secure. If the economy holds up, FSK should do well. HOLD

FS KKR Capital Corp. (FSK)
Next ex-div date: June 18, 2025

Main Street Capital Corporation (MAIN – yield 7.3%) – The story for this BDC is like FSK. MAIN has been trending higher since early April and got a boost over the past week as the economic prognosis improved. The investment outlook has been cautious because of rising expenses and tariff concerns, as with most other companies. But if the economic optimism is confirmed going forward, the stock could have a nice move higher. MAIN has delivered a solid return since being added to the portfolio last year. The fortunes of this portfolio position will depend on the economic news going forward. And it pays a high yield with monthly dividends while you wait around. HOLD

Main Street Capital Corp. (MAIN)
Next ex-div date: June 20, 2025, est.

ONEOK Inc. (OKE – yield 5.1%) – This midstream energy company stock performance has been disappointing. OKE is down 17% YTD while the overall energy sector is only down 3.2% over the same period. OKE recently took a hit when it missed on earnings in an unforgiving environment. But earnings were generally solid, and ONEOK reaffirmed guidance for 2025 and 2026, which includes an earnings growth jump to 15% as new assets come online, including two sizable recent acquisitions. The story is still quite strong, but there has been some recent share dilution that somewhat mutes the earnings growth. This stock should pick up soon, but I’ll watch it closely. HOLD

ONEOK Inc. (OKE)
Next ex-div date: August 3, 2025, est.

The Williams Companies, Inc. (WMB – yield 3.3%) – This solid midstream energy company stock has been bouncing around since January. That said, it’s still up over 11% YTD in a tough year for energy and midstream companies after it had two stellar performance years in 2023 and 2024. WMB has also managed to reach within two dollars of the 52-week high. Williams delivered another solid earnings report and raised guidance for 2025 as project expansions come online. WMB will likely continue to march back toward the high and beyond unless the market rolls over again. But regardless, it should be a solid holding over the rest of the year. BUY

Williams Companies, Inc. (WMB)
Next ex-div date: June 13, 2025

AbbVie (ABBV – yield 3.5%) – ABBV continues to hang in there. It took a hit along with the rest of the market in early April. Then the quick recovery got interrupted by pending tariff and pricing issues in May. Healthcare is still vulnerable to tariff news, and stocks have been stuck. The executive order tying U.S. drug prices to international prices landed without much damage to the stocks. But there is also the issue of pharmaceuticals being targeted for tariffs floating around after the administration said it is coming. The issue could have a negative impact on drug companies, and they are unlikely to move meaningfully higher until there is more clarity. AbbVie itself is beyond the Humira patent expiration, and earnings are growing again. HOLD

AbbVie Inc. (ABBV)
Next ex-div date: July 15, 2025, est.

Ally Financial Inc. (ALLY – yield 3.3%) – This online banker has been bouncing around since late last summer. There was a selloff in April and then a quick recovery. But ALLY has not really been able to generate meaningful upside traction. Rates are still high, and there is still a high degree of uncertainty regarding the direction of the economy over the rest of the year, although the prognosis is improving. The stock is getting a boost from the strong jobs report. Ally primarily deals with auto loans, which are cyclical. As long as the economy stays solid and the worst of the tariff uncertainty stays behind, ALLY should be strong and make up for some lost time. HOLD

Ally Financial Inc. (ALLY)
Next ex-div date: August 1, 2025, est.

Rating change – “BUY” to “HOLD”

Broadcom Inc. (AVGO – yield 1.0%) Earnings – The custom AI chipmaker reported earnings last week that slightly surpassed lofty expectations, and the company raised guidance for the rest of the year. But the stock pulled back 5% on Friday following the report. It looks like a “sell the news” situation. The price had run up 70% over the last two months, the fifth-best performance of all stocks on the S&P 500. The company did what was expected but didn’t issue unexpected and exciting news, like a 10-for-1 stock split or the estimates of $60 to $90 billion in AI revenue in a few years.

AVGO also sells at 33.6 times forward earnings, a premium to the semiconductor sector and a higher valuation than even Nvidia (NVDA). Broadcom still expects $5.1 billion in AI revenue this quarter, up 60% from a year ago. The stock is still capable of delivering a strong performance over the next year. But it may have peaked in the short term based on the current news. HOLD

Broadcom Inc. (AVGO)
Next ex-div date: June 20, 2025

Cheniere Energy, Inc. (LNG – yield 0.9%) – The country’s largest exporter of natural gas reported earnings that exceeded expectations and reiterated previous guidance for 2025. Commercial activity among LNG exporters has gained momentum after the administration lifted a moratorium on export permits. Cheniere plans to double production by building more export facilities. Several of those projects were recently completed and should begin to add to the bottom line. The price ran up to a high last week but pulled back substantially on Monday. LNG had been a prime candidate to be added to the S&P 500 index, which could induce new buying. But it looks like that won’t happen this time and the stock is pulling back. HOLD

Cheniere Energy. Inc. (LNG)
Next ex-div date: August 8, 2025, est.

Constellation Energy Corporation (CEG – yield 0.5%) – Constellation announced another big energy deal last week. The company struck a 20-year deal to provide nuclear power to Meta (META) to power its AI-capable data centers from its nuclear plant in Clinton, IL. Financial details are not yet available. It is the latest entry in the trend of tech companies purchasing carbon-free nuclear power to provide for huge growth in electricity demand from data centers. Constellation indicated that such a deal, and maybe more, was imminent in the last earnings report.

CEG initially jumped as much as 9% higher on the news then pulled back and lost ground for the day. It looks like another example of selling the news after CEG rocketed more than 90% higher since early April. Also, management indicated that new deal announcements were imminent in the last report. Things look great at Constellation, but the announcement was expected, and the prospect had helped propel CEG higher in recent weeks. HOLD

Constellation Energy Corporation (CEG)
Next ex-div date: August 15, 2025, est.

Digital Realty Trust, Inc. (DLR – yield 2.8%) – This data center REIT is back. DLR had trended lower for more than four months but has soared over 30% since early April. Despite the recent spike, DLR is still barely positive for the year and 10% below the high. Yet it has returned 59% since being added to the portfolio less than two years ago. It trades more with technology than other REITs because it specializes in data centers. Digital also raised its funds from operations (FFOs) guidance for this year because of strong data center demand. Hopefully, this uptrend can take DLR up toward the high. HOLD

Digital Realty Trust, Inc. (DLR)
Next ex-div date: June 13, 2025

Eli Lilly and Company (LLY – yield 0.8%) – LLY is a juggernaut that’s been stuck in the mud. It’s down more than 20% from the 52-week high and has returned -8% over the past year. This is a stock that has returned over 400% over the last five years. That’s a big slowdown. Drugs are likely soon to be targeted for tariffs, and inputs for Lilly’s weight-loss drugs come from Ireland. However, the administration indicated that time would be given to relocate facilities to the U.S., and Lilly has already begun that process. Tariffs are unlikely to sting Lilly that much. There’s also the issue of “most favored nation” drug pricing. But it’s unclear how that will work and how much other nations will reduce their prices.

Lilly is still knocking the cover off the ball with huge demand for its weight-loss and other drugs. There is also likely approval for an oral weight-loss drug later this year. But until there is more clarity on these issues, LLY is unlikely to generate lasting upside traction. That’s why it is rated “HOLD” for now. But fortunes should improve on the other side of this uncertainty and make up for lost time. HOLD

Eli Lilly and Company (LLY)
Next ex-div date: August 15, 2025, est.

McKesson Corporation (MCK – yield 0.4%) – The supply chain pharmaceutical company reported earnings that beat expectations. MCK has returned a whopping 25% YTD while the S&P is up 2% over the same period. MCK was downgraded to a HOLD rating as the healthcare sector is under pressure and will continue to be so in the weeks ahead as pricing and tariff issues are front and center. But this is another impressive quarter for a stock that has been red hot and likely won’t be very negatively affected by the issues. However, if the health care sector suffers, it will likely affect MCK in the near term. The company is a juggernaut with economies of scale in a growing business and steady, long-term growth. HOLD

McKesson Corporation (MCK)
Next ex-div date: September 2, 2025, est.

Oracle Corporation (ORCL – yield 1.1%) – This technology stalwart has a strong growth catalyst ahead with data centers and AI. Oracle Cloud Infrastructure (OCI) revenue grew 49% last quarter. The company also reported that it had $130 billion in order backlogs, a 63% increase from last year’s quarter. There isn’t nearly enough current data center capacity to meet demand. Oracle opened its 101^st Data Center Cloud Region last quarter. Management intends to double data center capacity this fiscal year and triple it by the end of next fiscal year. The company plans to eventually operate between 1,000 and 2,000 of these data centers. The price has been strong ahead of the earnings report this week. BUY

Oracle Corporation (ORCL)
Next ex-div date: July 10, 2025, est.

Qualcomm Inc. (QCOM – yield 2.3%) – The chipmaker is getting a big boost this week after the company reported a deal to buy Alphawave IP Group for $2.4 billion to move faster into the artificial intelligence data center market. Qualcomm is making a big push to get its central processing unit chips used in the fast-growing data center market. The deal is expected to close in the first quarter of 2026. The market likes that deal as the stock jumped over 4% on Monday. The company is broadening its products across a wider spectrum, which is good for the future. But the market wants to see rising smartphone demand for the stock to take off, and that isn’t happening yet. HOLD

Qualcomm Inc. (QCOM)
Next ex-div date: September 5, 2025, est.

Toll Brothers, Inc. (TOL – yield 0.9%) – This beleaguered homebuilder company stock has been moving higher following the strong jobs report last week. A solid economy is good for housing demand. But TOL is still down 10% YTD and over 30% from the 52-week high. It’s a problem that mortgage rates are staying stubbornly high, which hurts housing affordability. But if the economy proves to be strong for the rest of the year, TOL could make a sustained move higher. We will see how the economic news plays out. The longer-term supply/demand dynamic is hugely favorable to this company, and it should muster a sustained upside move eventually. HOLD

Toll Brothers, Inc. (TOL)
Next ex-div date: July 11, 2025, est.

Waste Management, Inc. (WM – yield 1.4%) – The garbage king is delivering as advertised so far. It faced a huge defensive test shortly after being added to the portfolio, and it passed. WM did fall sharply but then gained back all the losses. The stock was later under some pressure while many other stocks soared amid the improved tariff news and the “risk on” mood. But WM regained its footing and recently made a new high before pulling back over the last few days. WM took a back seat as cyclical stocks rallied after the positive jobs report. WM should continue to be solid in just about any kind of market. BUY

Waste Management, Inc. (WM)
Next ex-div date: September 15, 2025, est.

NextEra Energy (NEE – yield 3.1%) – The regulated and clean energy utility stock was strong but has since found more trouble. The stock initially pulled back on the spike in interest rates from the U.S. credit downgrade. Then, the clean energy industry took a hit as the new bill in Congress passed the House and promises to strip subsidies for clean energy. The huge subsidies had given support to much of the industry. It’s certainly negative for NextEra, which was a big beneficiary. The company can stand on its own and has before. It should endure this storm in decent shape. In fact, NEE has already made up all the losses. But the news cycle on this may have more legs, and the rating will be reduced to “HOLD” until the damage seems complete and NEE maintains the recent upward momentum. HOLD

NextEra Energy Inc. (NEE)
Next ex-div date: September 2, 2025, est.

USB Depository Shares (USB-PS – yield 6.0%) – The recent turbulence should have been a good time for fixed income. But interest rates spiked along with the stock market volatility. As a result, this preferred stock plunged to a new 52-week low. The combination of economic uncertainty and rising interest rates took the stock down. However, it should regain traction as the market has stabilized, and rates are likely to trend lower. BUY

USB Depository Shares (USB-PS)
Next ex-div date: July 15, 2025

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.4%) – Ditto for VCLT. The long-term corporate bond ETF loves falling interest rates and hates rising ones. There will be more price pressure if rates continue to rise and vice versa. But the situation over the course of the year should be positive. BUY

Vanguard Long-Term Corp. Bd. Index Fd. (VCLT)
Next ex-div date: July 1, 2025, est.

Dividend Calendar

Ex-Dividend Dates are in RED and italics. Dividend Payments Dates are in GREEN. Confirmed dates are in bold, all other dates are estimated. See the Guide to Cabot Dividend Investor for an explanation of how dates are estimated.

The next Cabot Dividend Investor issue will be published on July 9, 2025.

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