Cabot Dividend Investor Issue: May 14, 2025

Profit from This Sleeping Giant

What a ride! Say what you will about 2025. But one thing is for sure: It hasn’t been boring. And the fun may not be over yet.

Just a little over a month ago stocks were crashing. The Nasdaq fell 27% from the high and the S&P came within bad breath distance of a bear market, down 19% from the high on a closing basis. We were going full speed into a trade war with the rest of the world. The consequences were almost certain to be horrific, at least according to the financial press. But the story is changing fast.

The S&P has soared 22% from the intraday low on April 7. The index is now in positive territory YTD and within 5% of the all-time high. The technology-laden Nasdaq index is up 28% from the April low. The market posted an epic one-day 9.5% rally after a 90-day grace period on tariffs for most countries was announced. Stocks also had a 9-day rally after negotiations with China thawed.

Over this past weekend, the Trump administration announced huge progress with the Chinese. The two sides reportedly agreed to a 90-day pause on tariffs, with duties set to drop 115% on both sides by Wednesday. President Trump and the Chinese President, Xi, are likely to talk in the coming days. This follows the announcement of a comprehensive deal with the U.K. last week.

New trade deals with other countries could come in the days ahead. China was supposedly the toughest nut. The recent news indicates that a positive resolution and an end to the tariff uncertainty is very much in sight. It certainly appears that the worst of the tariff uncertainty is over, and the post-tariff Promise Land is in sight.

But the market tends to overreact in the near term. Tariff trouble isn’t over yet. There could still be setbacks. A negative headline can roil the market on any day. Things are going well now but there are still negotiations with Europe. Those countries are a pain in the tweasle. There’s also the economy. Growth is slowing. It may pick up or slow further. What will be waiting beyond the tariffs?

There’s an old Wall Street adage, the first part of which says, “Nobody ever knows in which direction the next 10% move in the market will be.” That’s true always. But it’s especially true now.

We are in a place, at least for a while, where anything can happen. The tariff uncertainty could evaporate quickly or drag on for months. Interest rates could go up or down. The economy could boom or bust. It’s tough to pick a horse amid such varying possibilities. Fortunately, there is a trend to bank on that will thrive regardless of the near-term gyrations of the market or economy.

Artificial intelligence is a massive growth catalyst that will endure and thrive in any environment. It is a generational phenomenon that will drive certain stocks to huge gains. The dominant trend has sold down and consolidated in recent months. Such a move was overdue. But technology is coming back strong. It’s the hottest sector again.

Recent big tech earnings reports indicate AI demand is booming. And most stocks are much cheaper. Companies will continue to spend on AI because they must. Not falling behind is a matter of survival for many businesses. And AI investments will pour in regardless of tariffs, interest rates, inflation, or the state of the economy.

In this issue, I highlight a goliath in the technology industry that is poised for a huge growth windfall from artificial intelligence in the years ahead. The stock has fallen far from the high. But the AI trend is revving up again and will likely transcend the current unpredictable environment.

What to Do Now

The market can go either way from here in the near term. While we certainly appear to be moving beyond the tariff uncertainty, the state of the economy is still very much in question in the near term. It’s unclear whether to go with defensive or cyclical stocks. Interest rates could go up or down.

The strongest rally is in the most previously beaten-down sector, technology. The sector has been the best performing of the 11 S&P stock sectors over the past month, up about 15%. Technology had driven this market higher throughout the current bull market until this year. A correction was due. But now that sector is coming alive again and is likely to make up for lost time over the rest of this year. I especially like Broadcom (AVGO) and this month’s stock, featured below.

It is also likely to be a good year for the portfolio’s energy positions, especially the midstream energy companies, including Enterprise Product Partners (EPD), ONEOK Inc. (OKE), and The Williams Companies (WMB). Natural gas demand is still strong, and energy production is likely to thrive going forward.

However, it’s time for caution in the healthcare stocks, including AbbVie Inc. (ABBV), Eli Lilly (LLY), and McKesson (MCK). The industry is facing the Trump administration’s executive order tying U.S. prices to overseas prices, and the details remain vague. There are also tariffs coming for pharmaceuticals, as promised by the administration. The sector is likely to be in the crosshairs of uncertainty in the weeks ahead and those stock ratings have been reduced to a HOLD pending more clarity.

For the first time since the tariff uncertainty began, it now looks like there might be a clear path for a sustained upside rally that could drive stocks to new highs.

Recent Activity

April 16
AbbVie (ABBV) – Rating change “HOLD” to “BUY”

May 7
Eli Lilly and Company (LLY) – Rating change “BUY” to “HOLD”
AbbVie Inc. (ABBV) – Rating change “BUY” to “HOLD”

May 14
Buy Oracle Corporation (ORCL)
McKesson Corporation (MCK) – Rating change “BUY” to “HOLD”
UnitedHealth Group, Inc. (UNH) – Rating change “HOLD” to “SELL”

Featured Action

Buy Oracle Corporation (ORCL)

Oracle Corporation (ORCL)
Security type: Common Stock
Sector: Technology
Price: $157
52-week range: $114.55 - $198.31
Yield: 1.27%
Profile: Oracle is a large multinational technology powerhouse that primarily offers network computing services and software.

Positives

• Demand for access from enterprise customers is rapidly increasing with AI.
• The company has a $130 billion current order backlog and a big runway for growth.
• The company offers best-in-class services that are crucial in the new age.

Risks

• The tech selloff may not be done and tariff uncertainty could roil the market again.
• Technology is unpredictable and could evolve in a way than isn’t beneficial to Oracle.

Oracle is a large multinational technology company that primarily offers cloud computing, database software, and enterprise software applications. The Austin-based company was founded in 1977 as a software company and is one of the first of the modern technology giants. It’s a goliath with $59 billion in annual revenue and 160,000 employees.

The company is now best known for its relational database management system and for its cloud-based enterprise applications. Oracle breaks down the business into four categories: cloud services and license support, cloud license and online licensing, hardware, and services. But the cloud services part represents about three quarters of the company’s revenue.

The cloud refers to a global network of remote servers that store and process data for devices and computers. It’s a vast online storage space where files and applications are stored, accessible from anywhere with an internet connection. Oracle offers a suite of database management software and a large portfolio of cloud applications. Businesses use it to streamline financial operations, manage supply chains and human resource workflows, tap various artificial intelligence apps, and countless other things.

Companies require cutting-edge computer power and services to streamline the business and compete effectively. But they don’t have the capital resources or expertise to build out a computer infrastructure nearly as extensive as Oracle’s. It makes sense to tap into Oracle’s services for a fee. That way they can compete at the highest levels by utilizing technological systems they could never build themselves.

Basically, Oracle is a software company that offers various applications to improve organizational management and efficiency. Such capabilities are about more than just acquiring an edge. They are a matter of survival in today’s environment. Oracle’s Database Management System (DBMS) is the most popular application currently on the market. Customers include Intel (INTC), Cisco Systems (CSCO), Zoom (ZM), and Intuit (INTU).

The emergence of artificial intelligence has dramatically increased the need for Oracle’s services. The latest earnings report provides a glimpse into the potential growth of the company and the stock.

Looking back, ORCL has a been a strong performing stock that has vastly outperformed the overall market. Here are the recent returns (as of 5-12-25):

It’s worth noting that the above numbers were generated after ORCL fell 20% below the 52-week high amid the technology sector selloff and the tariff correction. Even a bloodied ORCL beats the market by a mile.

Among its cloud services, Oracle offers a service called Oracle Cloud Infrastructure (OCI). It allows customers to tap into its vast data center networks. While the other Oracle Databases rely on traditional management and legacy data centers, ORCL is the one that provides AI capabilities. Current customers include AI start-ups, including OpenAI, Cohere, and Elon Musk’s xAI.

The service is highly popular not only for what it provides but because it provides it faster and cheaper than the competition. Oracle uses Random Memory Direct Access (RMDA) network technology, which is much faster than traditional ethernet networks. The company earns revenue by leasing data centers to enterprise customers that pay for computer capacity by the minute. Faster equals cheaper, and that makes it highly desirable.

The growth potential was illustrated in the last quarterly report. Total revenue at the company was $14.1 billion for the quarter, a modest 6% increase over last year’s quarter. But OCI revenue grew 49% for the same period to $2.7 billion. The company also reported that it had $130 billion in order backlogs, a 63% increase from last year’s quarter. Chairman Larry Ellison said that data center demand was a big part of that growth.

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 dividend is currently $2.00 per share annually, which translates to a modest 1.27% yield at the current price. But the company has grown the payout by an average of double digits annually for the past five- and 10-year periods. Dividend growers tend to be the best performers on the market.

The data center expansion will take some investment. But that shouldn’t be a big problem because Oracle currently has over $17 billion in cash. There is a strong catalyst for growth going forward. ORCL is also well below the high. There is a good chance that performance could be even better going forward.

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

Portfolio Recap

AGNC Investment Corporation (AGNC – yield 16.0%) – The mortgage REIT reported earnings that beat consensus estimates. The stock price has moved higher since the report. The REIT reported wider spreads as the 10-year Treasury rate has moved higher again, and the Fed is likely to cut the Fed Funds rate several times this year, perhaps beginning in June. It also posted a total return for the stock of 7.8% in the first quarter. AGNC can’t stand up to a market like we’ve had recently with indiscriminate selling. But it should continue to rebound as the market recovers and likely trends higher. HOLD

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

Brookfield Infrastructure Partners (BIP – yield 5.4%) – BIP has made a solid move up from the recent bottom over the past month – just like most of the market. 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. BIP is slightly in positive territory for the year so far after two crummy years before this. The business itself is sound, but the stock isn’t delivering. It’s off the lows but it’s still miles below the early 2022 high. BIP will continue to be held for now. (This security generates a K1 form at tax time.) HOLD

Brookfield Infrastructure Partners (BIP)
Next ex-div date: May 30, 2025

Cheniere Energy Partners, L.P. (CQP – yield 5.6) Earnings – This NGL export partnership reported earnings that exceeded expectations on revenue and earnings, on an adjusted basis, and reiterated previous guidance for 2025. Margins were higher as energy prices increased from last year. The stock price has basically stayed even since the report as the more beaten down sectors rose in the recent market rally. CQP held up relatively well in the recent market tumult and is up over 10% YTD. Global natural gas demand remains strong and growing and Cheniere is the largest U.S. exporter. Regulations are coming down and gas production is being ramped up. It should be in a strong position for the rest of the year after surviving this market in fine shape. (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 6.8%) – The midstream energy partnership reported solid earnings a couple of weeks ago. Operational income increased and distributable cash flow rose 5% over last year’s quarter as the partnership posted record natural gas processing and pipeline volumes. But profits were limited by reduced refined product margins as energy prices fell. Natural gas is resilient but the small part of the business with commodity price exposure is under pressure. Looking forward, 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 earnings and Enterprise continues to retain earnings for future growth. (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 14.4%) Earnings – This Business Development Company (BDC) reported solid earnings last week and the stock has edged higher since. The BDC’s earnings were $0.67 per share and the company paid a regular dividend of $0.64 and a supplemental dividend of $0.06. While the payout is cutting it a little close, it has been the norm and the BDC has $3.2 in liquidity. FSK is slightly negative YTD but has returned 22% since being added to the portfolio about a year ago, compared to a 14% for the S&P over the same period. It’s held up OK in the market turbulence. It’s very economically sensitive and it will be sold if the economy shows signs of turning south. HOLD

FS KKR Capital Corp. (FSK)
Next ex-div date: June 20, 2025, est.

Main Street Capital Corporation (MAIN – yield 7.9%) Earnings – The BDC reported basically solid earnings with recovering net asset value (NAV) and higher distributable income. Although earnings slightly exceeded expectations, they were slightly lower than last year because of rising costs. The investment outlook is cautious because of rising expenses and tariff concerns, like most other companies. MAIN has delivered a solid return of 28% since being added to the portfolio in March of last year, which is double the S&P return over the same period. But relative returns are fading in the volatility as the return is -6% YTD. The maintenance of this portfolio position will depend on the economic news going forward. HOLD

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

ONEOK Inc. (OKE – yield 5.1%) – This midstream energy company stock tends to be a lot more volatile than its peers. That was an unfortunate quality when the market was getting hammered. OKE took a further blow when it missed on earnings in an unforgiving environment. But it has come back and it’s up 5% since the beginning of the month and 10% from the recent low. ONEOK reaffirmed guidance for 2025 and 2026 which includes an earnings growth jump to 15% as new assets coming online, including two sizable recent acquisitions. The story is still quite strong with highly resilient and growing revenue and earnings in a great segment of the market. HOLD

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

The Williams Companies, Inc. (WMB – yield 3.5%) – The midstream energy company delivered another solid earnings report to complement the impressive resilience of the stock. Earnings per share were up 8% and cash flow from operations grew 16% over last year’s quarter. The company also raised guidance for 2025 as project expansions come online. Despite the tumultuous market environment, WMB has been the most resilient of the midstream energy companies in the portfolio and has delivered a 6.5% YTD return even after recent weakness. WMB will likely continue to march back toward the high and beyond unless the market rolls over again. BUY

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

AbbVie (ABBV – yield 3.4%) – Market volatility is coming for healthcare. While the rest of the market is getting great tariff news, ABBV is in the crosshairs. The president said he would sign an executive order tying U.S. drug prices to international prices. But it is unclear how that will happen, and stocks of drug companies recovered after an initial selloff on the news. Plus, drugs are likely to be targeted for tariffs soon, according to the administration. AbbVie itself is doing great as the Humira expiration pain is behind it and earnings are growing again. Immunology drugs Skyrizi and Rinvoq grew sales by 65% in the quarter with revenue of $5.1 billion. The trajectory is great, but we’ll have to wait and see how these externally caused issues play out in the weeks ahead. 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. It was near the high point of the recent range, but the market took it down in the tumult of the last couple of months. The economically sensitive company stock is showing very strong upside amid the tariff relief this week. 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. It deals primarily with auto loans, which are highly cyclical. But the economy is also showing signs of resilience and could surprise to the upside. HOLD

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

Broadcom Inc. (AVGO – yield 1.1%) – This superstar AI company stock has been off to the races in the better market. AVGO has soared over 50% since the low of early April. It’s up over 15% already in May. The stock got destroyed in the market tumult because the market was cruel to previous high-flyers and it’s still down over 13% YTD. But AVGO was hot for a good reason, soaring revenues. It was taken down by external factors and the stock is taking off as those problems dissipate. The other big tech company earnings indicate that AI spending is alive and well. AVGO might get a further big boost when it reports earnings next month. BUY

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

Cheniere Energy, Inc. (LNG – yield 0.9%) Earnings – The country’s largest exporter of natural gas reported earnings last week that exceeded expectations and reiterated previous guidance for 2025. Revenues were up 31% and earnings increased 6% over last year’s quarter. The company also reported stronger margins as natural gas prices increased from last year. The main issue is that recently completed projects are coming online and will continue to do so for the rest of the year. LNG was solid in the tough market and should trend higher over the rest of the year. HOLD

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

Constellation Energy Corporation (CEG – yield 0.9%) – WOW! The story is like that of AVGO. The market took down this previously red-hot stock more than it deserved, and it had huge upside when the external factors improved. CEG is up about 80% since the April low and almost 30% so far in May. Meanwhile, the company itself is doing great. Electricity demand is sure to grow. The two huge recent deals (the Microsoft (MSFT) deal and the Calpine acquisition) will deliver a high level of earnings growth in the years ahead.

The company beat on revenues and missed slightly on earnings expectations with 10% revenue growth and 18% earnings growth from last year’s quarter. But the company reiterated 2025 guidance, which is bucking the market trend. A statement from management could be the most important information from the report. Management said in the report that the company “made tremendous progress on new power agreements that we expect to announce soon.” The previous two deals sent the stock soaring. HOLD

Constellation Energy Corporation (CEG)
Next ex-div date: May 16, 2025

Digital Realty Trust, Inc. (DLR – yield 2.9%) – This data center REIT has rediscovered its mojo. DLR has soared 24% since early April while most other REITs are still sucking wind. It reversed a sustained decline that had been in place since late last year. Although DLR is still far below the high made in late November and it’s still lower YTD, it has still returned about 50% since being added to the portfolio less than two years ago. It trades more with technology that 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. HOLD

Digital Realty Trust, Inc. (DLR)
Next ex-div date: June 15, 2025, est.

Eli Lilly and Company (LLY – yield 0.8%) – As I mentioned above with ABBV, healthcare is in the crosshairs. It’s the only S&P 500 market sector that’s lower over the past week. The big news is the executive order tying U.S. drug prices to international prices. Initially big pharma stock sold off on the news. But they have rebounded as it is unclear how the pricing will work or if it will have a big effect outside of Medicare. There is also the tariff issue. The Trump administration has already warned that it intends to target drugs for tariffs soon. The company itself is doing great. But there could be some turbulence in the near term as these external issues play out. That’s why LLY was downgraded to a “HOLD” last week. HOLD

Eli Lilly and Company (LLY)
Next ex-div date: May 16, 2025

Rating change – “BUY” to “HOLD”

McKesson Corporation (MCK – yield 0.4%) Earnings – The stellar performing pharmaceutical supply chain company reported stellar earnings last week with 19% revenue growth and 15% earnings growth over last year’s quarter. The stock has been humming and has returned 22% YTD, despite pulling back a little over the last week. It’s down about 4.5% from the high as the healthcare sector has struggled. The company should not be very adversely affected by drug pricing or even tariffs as it just distributes drugs to people who will continue to take them. However, MCK has had a great run and may pull back amid the struggles in the sector. It will be reduce to a “HOLD” until the sector has more clarity. HOLD

McKesson Corporation (MCK)
Next ex-div date: June 2, 2025

Qualcomm Inc. (QCOM – yield 2.3%) – Last month’s earnings report was a clunker, and QCOM fell 8.7% on the day of the announcement. The earnings were mixed with sales growing 17%, driven by strength in the automotive and IoT segments. But handset revenues grew only 12% and inventories rose. Also, revenue guidance for next quarter was slightly below the market’s expectations. Investors want to see strong handset sales, which is the core of the business and the area that could drive strong growth. And it didn’t see that. But the results were still solid, and those stronger sales should come later this year. Meanwhile. QCOM is benefitting from the tech recovery and has risen nearly 10% in just the last week. HOLD

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

Toll Brothers, Inc. (TOL – yield 0.9%) – This beleaguered homebuilder company stock is soaring back in the revitalized market. TOL is not being left behind in the recent rally. It’s up over 10% so far in May and 28% from the recent low. The already beaten down stock had held up well initially in the down market, but mortgage rates climbed again, and the stock fell back. It has since climbed back and if the economic news remains OK the recovery should continue. The longer-term supply/demand dynamic is hugely favorable to this company, and it will muster a sustained upside move eventually. HOLD

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

Rating change – “HOLD” to “SELL”

UnitedHealth Group Inc. (UNH – yield 2.2%) – The sorry performance continues. The company reported earnings earlier this month that missed estimates and lowered earnings guidance for 2025. The market wasn’t happy about it and UNH crashed more than 22% in one day, the worst day for the stock since 1998. The stock has not bounced back from the carnage, even though the market has been booming. Healthcare is under pressure and this is a company that hasn’t been able to get out of its own way. UNH plunged again on Tuesday as the new CEO stepped down already and the company nixed its 2025 guidance. UNH will take a while to rebuild from here, and there are much better opportunities in the meantime. SELL

UnitedHealth Group Inc. (UNH)
Next ex-div date: June 10, 2025, est.

Waste Management, Inc. (WM - yield 1.5) Earnings – 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 nearly all of the losses. The stock has been under pressure over the last week while many other stocks soared amid the improved tariff news and the “risk-on” mood. The company also reported earnings that were solid but unexciting. Technology stocks are flying again and the market has temporarily soured on “stodgy” stocks when there are other quick gains to be had. But WM will continue to be solid in just about an kind of market. BUY

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

NextEra Energy (NEE – yield 3.2%) – The combination regulated and clean energy utility is having a great May so far, up over 7% for the month. The company reported mixed earnings last month with a beat in revenue and a miss on earnings. But the company continues to grow at a strong clip that greatly exceeds the industry average. NEE should have less downside than the overall market from here. And it should be a desirable stock when investors demand more safety. NEE has also performed well in strong markets. BUY

NextEra Energy Inc. (NEE)
Next ex-div date: May 30, 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 has moved off the low in the improving environment. Interest rates are tough to predict but even if they rise this preferred issue has a track record of solid performance even in the toughest markets. BUY

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

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.3%) – 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. There is no reason at this point to expect a significant interest rate spike from here and rates could also trend lower over the rest of the year. BUY

Vanguard Long-Term Corp. Bd. Index Fd. (VCLT)
Next ex-div date: June 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 June 11, 2025.

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