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Dividend Investor
Safe Income and Dividend Growth

December 21, 2022

A Better 2023, Eventually

This year stunk. Next year should be better. Remember that if the market falls to a new low early next year.

There are some very good reasons to believe the market will turn around in 2023. Stocks trend higher over time. The average bear market lasts around 15 months. This one is almost a year old. Of the seven negative-returning calendar years for the market since 1980, five were followed by years of returns of over 20%.

There will likely be great opportunities in the year ahead. But probably not before things get worse. What will sobered-up and cranky investors see when the rubber hits the road in January?

There is too much uncertainty for the market to generate lasting upside traction at this point. No one knows how sticky inflation will be or how long and deep a likely recession will be. Until the market sees more clarity on those issues, it will likely be more choppy waters ahead.

That’s why the portfolio has a distinct defensive bias. It’s play defense for now, and plan to be more aggressive later. We’ll navigate this bear market in great shape with an income and look forward to higher returns in 2023.

High Yield Tier

Enterprise Product Partners (EPD – yield 8.0%) – On the surface, EPD doesn’t appear to be doing anything. It’s around the middle of the 52-week trading range and the same price it was back in March. But EPD has returned over 15% YTD in an abysmal year. This stock is designed to bore you while providing a high income and positive traction in a bear market. The market is likely in for more trouble ahead and more outperformance from EPD. (This security generates a K1 form at tax time). BUY

Medical Properties Trust, Inc. (MPW – yield 10.2%) This hospital REIT remains extremely undervalued. The stratospheric dividend also appears to be safe. The company delivered terrific earnings last quarter with profits up 30% over last year. That was pretty good for a stock that was trading down 50% YTD. It has resumed selling down again, along with just about everything else, in the latest market downswing. Hopefully, MPW has already made a low and will realize its upside potential in the new year. HOLD

ONEOK Inc. (OKE – yield 5.9%) – This midstream energy stock has rallied sharply off the September lows but has moved sideways in an up-and-down fashion over the last month. Although the rally has sputtered, it is likely that OKE and other midstream energy companies have the right stuff going into 2023. Revenues are both recession- and inflation-resistant. The high dividend is safe. And the stock is still reasonably valued. The short-term behavior of the stock is anyone’s guess. But OKE should deliver positive results over the course of 2023. BUY

Realty Income (O – yield 4.7%) Sure, the rally from the October low ran out of gas. The stock has been on a sideways and bouncy track for the last month. But it held up remarkably well in the latest round of selling, which took down just about everything else. Investors appear to be coming around and appreciating a defensive and legendary income stock amid the current uncertainties. I expect more of the same in the early part of next year as we move toward a recession and possibly a new market low. BUY

The Williams Companies, Inc. (WMB – yield 5.3%) WMB had been superior since late September but has finally capitulated and moved lower this month. The latest round of selling has spared precious few stocks. But the prospects for next year remain excellent and the relative performance of WMB should be strong. The company posted strong earnings because of resilient natural gas demand, something that is likely to endure through the recession based on shortages overseas. We’ll see which way it breaks next. But it should be solid through the new year. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.7%) It’s looking good for this underappreciated healthcare stud going into the new year. Healthcare is a great place to be as the economy may well be bounding toward a recession. ABBV returned 23% YTD in this bear market. The stock has been trending higher since the end of September and is now within 8% of the all-time high. Plus, AbbVie has 11 other drugs besides Humira that are on track to top $1 billion in net revenue this year. It’s a great company meeting a friendly market environment for the sector. HOLD

Broadcom Inc. (AVGO – yield 3.4%) This technology stalwart once again topped Wall Street’s earnings estimates with 21% revenue growth and a 34% earnings increase over last year’s quarter. Broadcom also topped guidance estimates for the next quarter. While the technology sector is getting blasted again in the market selling for the past few weeks, AVGO has moved higher this month and is still in an uptrend that started in October. It’s still a long way from the 52-week high and still has a negative 15% return YTD. But it is in a beleaguered sector and should move up fast when the overall tech environment improves. HOLD

Brookfield Infrastructure Partners (BIP – yield 4.7%) – I’m disappointed. This infrastructure partnership had been trending sharply higher since the second week of October but has pulled back sharply so far this month. It’s likely because of a stronger dollar. But it should be a temporary blip as the company’s crucial assets will continue to deliver steady earnings through a recession, it has inflation adjustments built into its contracts, the dividend is solid, and the stock is cheap now. (This security generates a K1 form at tax time). BUY

Eli Lilly and Company (LLY – yield 1.3%) – It has been a glorious year for LLY. While the market has gone to Hell in a handbag and may get worse, LLY has returned over 32%YTD. It has outperformed the S&P 500 to the tune of over 50% this year. The outperformance is because healthcare is a great place in this market. But mostly because Lilly may be the best large healthcare company out there. Not only is Lilly expected to deliver annual earnings growth of 19% over the next five years, but it also has two incredible drugs in the pipeline that are potential future mega-blockbusters. HOLD

Intel Corporation (INTC – yield 5.1%) – Now we go from the best to the worst. INTC has been a dog and, apparently, the dunking in technology isn’t over yet. The sector has been the worst-performing on the market over the past weeks as the market turned south again. Things may get worse in the near term, but the situation will surely improve for technology at some point. Hopefully, the big turnaround isn’t that far off. Intel’s individual prospects should significantly improve as growth investments come to fruition. It’s been a painful slog. But it could prove to be worth the pain over time. BUY

Qualcomm Inc. (QCOM – yield 2.7%) After a terrible year, QCOM is enduring another selloff in the latest market downturn. I can’t say that things won’t get worse before they get better. But it will surely get better. This is a bargain-basement price compared to where QCOM is likely to be priced a year from now. Technology stocks can turn around fast and make up for lost time as the environment changes, and it likely will in the new year. The market has been pricing in bad news all year, even while earnings were still booming. Before long, the market, which tends to anticipate six to nine months ahead, may start sniffing out a recovery. HOLD

Visa Inc. (V – yield 0.9%) – The company once again killed it on earnings. The payments processing giant continues to benefit from the end of covid restrictions internationally despite the slower economy. The market is not being kind to cyclical stocks right now. Of course, when the market eventually turns, those stocks tend to be the first to recover, and V has a history of being one of the first stocks to move higher when that happens. We have had to endure a little pain en route to likely better performance in 2023. HOLD

Safe Income Tier

NextEra Energy (NEE – yield 2.0%) – Utility stocks were the worst-performing market sector in the fall selloff as interest rates soared to 15-year highs and fixed-rate alternatives became more attractive. NEE fell over 22% in about five weeks to near the 52-week low. But the selling was overdone.

The interest rate trade is being reversed. But it’s also true that utility stocks are among the very best stocks in a recession. One of the best recession stocks got cheap ahead of a likely period of historical outperformance. NEE has moved sharply higher from the October low and already regained most of what was lost in the fall. Sure, NEE isn’t as cheap as it was but it has established a solid upside trend and has momentum. BUY

Xcel Energy (XEL – yield 2.8%) – The same things are true of XEL as NEE. This clean energy utility was oversold in the September market plunge and has had a recovery very similar to NEE. The near term is shaping up well and the longer-term prognosis is also excellent. It should also benefit from new legislation from Washington that will reduce costs of its considerable clean energy production. The stock should be solid in a recession. BUY

USB Depository Shares (USB-PS – yield 5.7%) – The high-paying, investment-grade preferred stock is certainly working so far. It was added to the portfolio after interest rates spiked to a 15-year high. Rates have since been plunging as inflation cools and we barrel toward recession. Hopefully, you got the stock last month when the yield was over 6% but you can still buy it now if you didn’t. BUY

Invesco Preferred ETF (PGX – yield 6.2%) – Ditto what I said about USB-PS. Longer-term rates have fallen since this preferred stock ETF was added to the portfolio early last month. Although interest rates may have peaked for the foreseeable future, it’s still a good time to lock in this high yield as a recession is likely to pressure rates lower. BUY

High Yield Tier

Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on close 12/20/22Total ReturnCurrent YieldCDI OpinionPos. Size
Enterprise Product Partners (EPD)2/25/1928Qtr.1.98.30%2311%8.00%BUY1
Medical Properties Trust, Inc. (MPW)9/14/2214Qtr.1.168.40%11-17%10.20%HOLD2
ONEOK Inc. (OKE)5/12/2153Qtr.3.746.00%6433%5.90%BUY1
Realty Income (O)11/11/2062Monthly2.984.20%6312%4.70%BUY1
The Williams Companies, Inc. (WMB)8/10/2233Qtr.1.75.30%321%5.30%BUY1
Current High Yield Tier Totals:6.40%8.00%6.80%

Dividend Growth Tier

AbbVie (ABBV)1/28/1978Qtr.5.644.80%161149%3.70%HOLD3
Broadcom Inc. (AVGO)1/14/21455Qtr.16.42.60%54428%3.40%HOLD1
Brookfield Infrastucture Ptrs (BIP)3/26/1924Qtr.1.443.60%3146%4.70%BUY3
Eli Lily and Company (LLY)8/12/20152Qtr.3.921.30%360145%1.30%HOLD3
Intel Corporation (INTC)3/9/2248Qtr.1.463.10%26-43%5.50%HOLD1
Qualcomm (QCOM)11/26/1985Qtr.31.50%11242%2.70%HOLD3
Visa Inc. (V)12/8/21209Qtr.1.50.70%205-1%0.90%HOLD1
Current Dividend Growth Tier Totals:2.50%40.30%3.20%

Safe Income Tier

NextEra Energy (NEE)11/29/1844Qtr.1.661.70%84107%2.00%BUY2
U.S. Bancorp Depository Shares (USB-PS)10/12/2219Qtr.1.136.10%204%5.80%BUY1
Xcel Energy (XEL)10/1/1431Qtr.1.952.80%69191%2.80%BUY3
Invesco Preferred ETF (PGX)11/9/2211Monthly0.736.50%125%5.90%BUY1
Current Safe Income Tier Totals:4.30%76.80%4.10%

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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.