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Dividend Investor
Safe Income and Dividend Growth

December 28, 2022

Looking Forward to a Better 2023

Another year is coming to an end. It was a crummy year for the market. The current roughly -20% YTD return for the S&P 500 with two days left marks the worst yearly performance for the market since 2008.

Although it’s been a tough year for stocks, history strongly suggests that 2023 should be a lot better. In the last 42 years, there have only been 7 calendar years of negative market returns and 35 years of positive returns. Of those 7 negative years, 5 were followed by years when the market rebounded at least 20%.

The market tends to trend higher over time. Bear markets have been excellent times to invest on the cheap ahead of the next bull market. The average bear market has lasted around 15 months and this one is almost a year old. There is an excellent chance that we see a turnaround sometime in the new year that leads us out of this bear market. There will be great buying opportunities.

But things may very well get worse in the first quarter of the year. Although the market tends to anticipate six to nine months into the future, it cannot yet see past inflation, rising interest rates, and a looming recession. That’s why the portfolio continues to play it safe with mostly defensive stocks and a couple of new fixed-income positions.

For now, the midstream energy companies including Enterprise Product Partners (EPD), ONEOK (OKE) and The Williams Companies (WMB) are the best portfolio stocks to buy. Not only do they provide a high income, but these companies have the ability to thrive during times of both inflation and recession.

I do like the other safe stocks as well, including Realty Income (O), Xcel Energy (XEL), NextEra Energy (NEE) and Brookfield Infrastructure Corp. (BIPC). These stocks also offer defensive characteristics that investors should continue to value in a rough market.

We’ll play defense for now with an eye toward getting more aggressive sometime in 2023.

High Yield Tier

Enterprise Product Partners (EPD – yield 7.9%) – EPD seems to be going nowhere. The price is at the lower end of the yearly range and at the same level it was in March. But EPD has managed to return 19% in a bear market where the S&P 500 is down about 20% for the year. That means EPD has outperformed the market by nearly 40% in 2022. The stock is also well-positioned to endure inflation and recession while paying a huge yield that is quite safe. (This security generates a K1 form at tax time). BUY

ONEOK Inc. (OKE – yield 5.7%) – After rising sharply from mid-October to mid-November, this midstream energy stock has been bouncing around and going sideways. OKE is also still well off the high of April. But after a stellar year in 2021, OKE has managed to return 19% in a bear market. 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. 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 5.1%) WMB was built for the current environment. It pays a big income and thrives amid inflation and recession. That’s why the stock has returned over 34% YTD while the S&P 500 is down 20%. And its relative outperformance should continue. Prospects for next year remain excellent. The company posted strong earnings because of resilient natural gas demand, something that is likely to endure through the recession based on shortages overseas. BUY

Medical Properties Trust, Inc. (MPW – yield 10.4%) This hospital REIT continues to be unloved in the market despite the fact that it remains extremely undervalued, pays a huge dividend, and the company delivered terrific earnings last quarter with profits up 30% over last year. Hopefully, MPW has already made a low and will realize its upside potential in the new year. HOLD

Dividend Growth Tier

AbbVie (ABBV – yield 3.6%) – ABBV is one of the few stocks that had a good year in 2022, returning 25%. Healthcare is a great place to be as the economy may well be bounding toward a recession. 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 3.3%) 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%) – Brookfield is probably the very best defensive stock in terms of inflation and recession fortitude. But the stock has been floundering. The reason is probably that BIP is international, and the dollar has been strong. Outside of that, BIP looks like the perfect stock to hold into 2023 as recession looms. It’s also looking to the future and focusing on megatrends of digitalization, decarbonization, and deglobalization. (This security generates a K1 form at tax time). BUY

Eli Lilly and Company (LLY – yield 1.2%) – It has been a spectacular contrarian year for LLY. While the market has been terrible and may get worse, LLY has returned over 33% 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 5.6%) – 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. It is possible that a new low could be hit. But it’s also approaching the darkest point before the dawn. 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%) – It’s true that performance has been uninspired. But V has returned -4% YTD while the market is down 20%. And financial stocks have performed worse than the overall market. It has held up relatively well. This is how it is in the bad times. But the good times are coming. Visa is simply one of the very best companies to own. The business formula is so good that it should be illegal. V could be a superstar in 2023. HOLD

Safe Income Tier

NextEra Energy (NEE – yield 2.0%) – Defense is back. There’s something about a looming recession that turns investors to the safest stocks. That’s why utilities are the second-best-performing market sector YTD and the best-performing over the last month. NEE has moved 24% higher since the fall low. 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%) – This clean energy utility stock is delivering as advertised. It’s doing just fine in a terrible market. Since more of the same is likely ahead in the next several months, XEL is an ideal stock to own right now. It has both safety, from a very defensive utility business, and growth, from the clean energy side. Although the relative performance in a bear market is special, XEL is no slouch in good markets either. It’s a great stock to own anytime. But heading towards a likely recession it’s one of the very best. BUY

USB Depository Shares (USB-PS – yield 6.0%) – This is a high-paying, investment-grade preferred stock with a 6% yield. This may be a rare opportunity to lock in such fixed-income rates. Recessions tend to exert downward pressure on interest rates, and you can still buy this security with a 6% yield. BUY

Invesco Preferred ETF (PGX – yield 6.2%) – Ditto what I said about USB-PS. Longer-term rates are still near the highest level in 15 years. And most economists are predicting a recession next year. This provides diversification from stocks with a high income ahead of a period when interest rates could fall back. BUY

High Yield Tier

Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On Cost

Price on

close 12/27/22

Total ReturnCurrent YieldCDI OpinionPos. Size
EPDEnterprise Product Partners (EPD)2/25/1928Qtr.1.98.30%2414%7.90%BUY1
MPWMedical Properties Trust, Inc. (MPW)9/14/2214Qtr.1.168.40%11-14%10.40%HOLD1/2
OKEONEOK Inc. (OKE)5/12/2153Qtr.3.746.00%6638%5.70%BUY1
ORealty Income (O)11/11/2062Monthly2.984.20%6414%4.70%BUY1
WMBThe Williams Companies, Inc. (WMB)8/10/2233Qtr.1.75.30%334%5.10%BUY1
Current High Yield Tier Totals:6.40%11.20%6.80%

Dividend Growth Tier

ABBVAbbVie (ABBV)1/28/1978Qtr.5.644.80%163153%3.60%HOLD2/3
AVGOBroadcom Inc. (AVGO)1/14/21455Qtr.16.42.60%55330%3.30%HOLD1
BIPBrookfield Infrastucture Ptrs (BIP)3/26/1924Qtr.1.443.60%3146%4.70%BUY2/3
LLYEli Lily and Company (LLY)8/12/20152Qtr.3.921.30%365149%1.20%HOLD2/3
INTCIntel Corporation (INTC)3/9/2248Qtr.1.463.10%26-44%5.60%HOLD1
QCOMQualcomm (QCOM)11/26/1985Qtr.31.50%10939%2.70%HOLD1/3
VVisa Inc. (V)12/8/21209Qtr.1.50.70%206-1%0.90%HOLD1
Current Dividend Growth Tier Totals:2.50%40.30%3.10%

Safe Income Tier

NEENextEra Energy (NEE)11/29/1844Qtr.1.661.70%84108%2.00%BUY1/2
USB-PSU.S. Bancorp Depository Shares (USB-PS)10/12/2219Qtr.1.136.10%191%6.00%BUY1
XELXcel Energy (XEL)10/1/1431Qtr.1.952.80%72200%2.80%BUY2/3
PGXInvesco Preferred ETF (PGX)11/9/2211Monthly0.736.50%112%5.90%BUY1
Current Safe Income Tier Totals:4.30%77.70%4.20%

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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.