Please ensure Javascript is enabled for purposes of website accessibility
Dividend Investor
Safe Income and Dividend Growth

Cabot Dividend Investor 818

The most bullish thing a market can do is hit new highs, and that’s what we’ve seen from this market in recent days, with most indexes and stocks participating on the upside. And with interest rates remaining tame, our dividend stocks have been doing well, too.

All of this is good, though it makes this month’s choice of a featured stock a bit more difficult, as many names are a bit extended to the upside. In the end, I went with a strong stock that gives us leverage to the strong U.S. economy—both the stock and dividend payment are likely to head higher over time.

Cabot Dividend Investor 818

[premium_html_toc post_id="157546"]

At New All-Time Highs

The market is strong: the S&P 500 and Nasdaq are at all-time highs, and most stocks and sectors are participating.

The strength of the market made the selection of this month’s new addition challenging. The strong stocks on my watchlist have ripped higher in recent weeks, making them look expensive. But I’m wary of those that haven’t participated in the advance; they’re more likely to sit out the next broad market advance.

So, I picked from the stronger pool for my Featured Buy, and will add the stock to the Dividend Growth tier today. It adds exposure to the booming transport sector to our portfolio, and adds leverage to the strong U.S. economy. The stock is certainly extended short-term, but it was range-bound until April of this year, so I think it still has gas in the tank (or, more appropriately, more diesel in the engine.)

[highlight_box]What To Do Now: Encouraged by the broad market’s strength, I put four stocks back on Buy in last week’s update: General Motors (GM), BB&T Corp. (BBT), Broadridge Financial (BR) and Xcel Energy (XEL). Most continue to thrive, although utilities and other conservative investments, including REITs, have pulled back this week as the market has strengthened.

Today I’m selling 1/3 of ONEOK (OKE), and adding CSX Corp. (CSX) to the Dividend Growth tier.[/highlight_box]

Featured Buy

CSX Corp. (CSX)

CSX Corp. is the third-largest U.S. railroad. The company recently underwent a major transformation that boosted margins, cash flow and profits. Now, the stock is riding a strong uptrend in the transport sector, and earnings are surging.

The Company
CSX’s rail network includes 21,000 miles of track, covering most of the U.S. east of the Mississippi. CSX trains carry coal from Appalachia to the Rust Belt, ferry trash out of New York City and haul fresh orange juice from Florida to New Jersey.

CSX’s customers are diverse. Coal makes up only 13% of CSX’s volume, contributing 18% of revenues. About 44% of volume is intermodal, contributing 16% of revenue. The remaining 62% of revenue and 42% of volume is merchandise, everything from lumber to lettuce.

CSX underwent a massive transformation last year. In March, Hunter Harrison, former CEO of Canadian National and Canadian Pacific, joined the company as CEO. As he had at his two Canadian posts, Harrison rapidly transformed CSX’s network from a hub-and-spoke system to a point-to-point system—the same model low-cost airlines like EasyJet and Southwest pioneered in the air travel industry. CSX now has half as many railcars and locomotives as before Harrison came on board, a 12% smaller workforce and the lowest costs in the industry. At the same time, train speeds have improved by double digits, and free cash flow more than doubled last year (after declining for three years in a row).

Unfortunately, Hunter Harrison died unexpectedly in December from an unspecified illness. CSX’s stock dropped immediately, and continued to struggle for several months. However, analysts eventually concluded that Harrison’s revolution would continue without him, and the stock took off again in April. Analysts now expect EPS growth to rise by 57% this year and by another 12% next year. Over the next five years, analysts expect EPS growth to average 20% per year.

The Dividend
CSX has a long history of paying dividends and continued to do so during the upheavals of the past year. The company has paid dividends every year since 1981, and has increased its dividend for eight years in a row. Over the past five years, the dividend increases have averaged 8%. CSX only yields 1.2% at current prices, but the company’s payout ratio of 25% leaves plenty of room for growth.

However, like all railroads, CSX is sensitive to economic growth. When the U.S. economy is doing well, demand for all types of materials and products rises, and so does traffic on CSX’s network. When economic growth slows, so does business.

That makes CSX a cyclical investment, and the company has had to reduce its dividend payments several times. The dividend has never been suspended, but because another downturn is inevitable, CSX is still more appropriate for medium-term growth-and-dividend investors than long-term buy and hold investors.

The Stock
As noted above, CSX lost its CEO in December, and the stock struggled for several months after that shock. However, the stock broke through overhead resistance in April, launching its current uptrend. Since then, CSX is up about 25%, leaving it extended to the upside.

However, with both the broad market and transport stocks in strong uptrends, we want to own the strongest stocks in the market—and CSX is the name to own.

Trying to buy the stock on a pullback would probably be a wise thing to do, especially because, as noted above, CSX is in a cyclical industry, and thus isn’t the kind of stock you can buy and put away for decades. As usual, though, I’ll keep things simple and add CSX to the Dividend Growth tier at tomorrow’s average price.

CSX Corp. (CSX)
Price: 75
52-week range: 48.11-76.24
Market cap: $64.63 billion
P/E: 11
Current yield: 1.2%
Annual dividend: $0.88
Most recent dividend: $0.22
Dividend Safety rating: 7.6
Dividend Growth rating: 7.8
Dividends since: 1981
Consecutive years of increases: 8
Qualified dividends? Yes
Payment Schedule:
Next ex-dividend date:
October 5, 2018 est.

Portfolio at a Glance

cdi818-portfolio copy

Portfolio Updates

High Yield Tier


The investments in our High Yield tier have been chosen for their high current payouts. These ?investments will often be riskier or have less capital appreciation potential than those in our other ?two tiers, but they’re appropriate for investors who want to generate maximum income from their? portfolios right now.


HOLD – AllianceBernstein (AB 30 – yield 8.5%) – AB continues to work its way back to its July highs. The stock was trading at a 52-week high late last month when Fidelity announced two new zero-expense-ratio mutual funds, triggering a selloff in asset management stocks. AllianceBernstein, which is known for its active management, is unlikely to be as affected by the new competition as are lower-cost competitors, like Vanguard, Schwab and Invesco. The stock dropped precipitously immediately following the announcement but is recovering steadily. In other news, AllianceBernstein’s assets under management rose to $546 billion in July, from $540 billion in June. Hold.


BUY – Community Health Trust (CHCT 31 – yield 5.2%) – CHCT is pulling back toward its 50-day moving average, currently around 30. Earlier this month, the stock hit a new all-time high after reporting revenue growth of 39% in the second quarter. Management also increased the dividend 0.6%, to 40.25 cents per quarter. The current pullback presents a good opportunity to buy CHCT, a health care REIT, for high yield and short- to medium-term growth. Just make sure you understand the taxes involved in owning REITs (there’s plenty of information available on your subscriber website if you want a refresher.)


BUY – General Motors (GM 37 – yield 4.1%) – I put GM back on Buy last week after the stock bounced off the bottom of its trading range. After rebounding for a few days GM pulled back again at the end of last week, but got a nice boost yesterday from the news that the U.S. and Mexico have agreed on some revisions to NAFTA. I still think the stock is a good value at this level, especially for investors whose priority is high yield. Earnings are still expected to decline this year, in part because of cost increases caused by President Trump’s new tariffs, but revenues are expected to recover in 2019, turning GM’s earnings growth positive again (albeit by low single-digits).


SELL 1/3 – ONEOK (OKE 67 – yield 4.7%) – After dropping through its 50-day line at the start of the month, OKE pulled back again two weeks ago, and has been trading in a tight range just above 67 ever since. The stock doesn’t look broken, but it doesn’t have upward momentum either. We’re sitting on an unrealized 25% gain (not including dividends), so I’m going to take some profits now. I’ll sell one-third of our shares at tomorrow’s average price. I’ll hold the rest while we give the stock time to figure out where it’s going next.


BUY – STAG Industrial (STAG 29 – yield 4.9%) – After pulling back briefly, STAG is bouncing back toward all-time highs as REITs begin to recover this week. After the stock’s recent pullback to its 50-day line, STAG has plenty of gas in the tank for a sustained advance. The company is a warehouse REIT that pays monthly dividends. High yield investors can buy some here.

Dividend Growth Tier


To be chosen for the Dividend Growth tier, investments must have a strong history of dividend increases and indicate both good potential for and high prioritization of continued dividend growth.


BUY – American Express (AXP 107 – yield 1.3%) – After breaking out of its four-month trading range to the upside last Monday, AXP has climbed 4%, hitting new all-time highs on five of the last six trading days. The breakout is a very strong bullish signal, and AXP looks like a great Buy here. Analysts are expecting revenues to grow 20% this year and 7% next year, fueling 24% and 11% EPS growth. Buy some here for dividend growth and short- and medium-term capital gains.


BUY – BB&T Corp (BBT 52 – yield 2.9%) – BBT bounced off support around 51 two weeks ago, and is looking a little healthier. Revenues are expected to grow slowly this year and next (2% and 4%) but tax breaks should provide a big 42% boost to earnings this year. Acquisitions could boost growth though. Regulators recently lowered the amount of cash banks like BB&T have to keep on hand, freeing up capital for acquisitions. I put the stock back on Buy last week, and in the short term, a rebound back to 55 is likely.


BUY – Broadridge Financial Solutions (BR 133 – yield 1.5%) – BR still looks healthy. After surging 14% after earnings early this month, the stock spent a week consolidating, and then returned to its gradual, long-term uptrend. Broadridge is the largest investor communications firm in the U.S., and delivers steady single-digit sales growth every year. EPS are expected to rise by about 10% this year and next, and management recently increased the per-share dividend by 33%, to $0.49 per quarter. Buy on pullbacks.


BUY – CME Group (CME 170 – yield 1.7%) – CME has bounced back to the top of its six-month trading range. The stock can be bought on pullbacks toward the bottom of the range, around 160, or on a breakout past overhead resistance around 172. The company is expected to report 14% sales growth and 40% EPS growth this year, and 4% and 6% growth next year. (CME owns major financial exchanges including the Chicago Mercantile Exchange and the Chicago Board of Trade.)


HOLD – Occidental Petroleum (OXY 80 – yield 3.8%) – OXY has just about closed the gap created by its post-earnings selloff, which is a good sign. The earnings selloff followed the news that Occidental will increase 2018 capital spending by over $1 billion to take advantage of higher oil prices. Analysts were surprised by the higher spending estimate, which won’t immediately be offset by higher production. However, the stock held up well in the weeks following the selloff, trading sideways instead of giving up more ground, and has now closed the gap. We’ll continue to hold.

Safe Income Tier


The Safe Income tier of our portfolio holds long-term positions in high-quality stocks and other investments that generate steady income with minimal volatility and low risk. These positions are appropriate for all investors, but are meant to be held for the long term, primarily for income—don’t buy these thinking you’ll double your money in a year.


BUY – Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.4%)
BUY – Invesco BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.8%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
BUY – Invesco BulletShares 2022 High Yield Bond ETF (BSJM 25 – yield 5.3%)
The BulletShares funds make up our bond ladder, which is a conservative strategy for generating a steady income stream by buying a series of individual bonds or defined-maturity bond funds that mature in successive years. Because the BulletShares funds are short-term and mature at the end of the year in their name (at which point Invesco disburses the net asset value, or NAV, of the ETF back to investors), they are a good store of value even when interest rates rise. And if you reinvest the proceeds of the maturing fund in a new, longer-dated holding every year, you can secure rising income stream as rates rise. You can construct your own ladder with either the investment-grade or high-yield funds, or a mix, as we’ve done. Invesco is also introducing a new series of BulletShares funds that hold municipal bonds, which may be of interest to some investors.


HOLD – Consolidated Edison (ED 78 – yield 3.6%) – After hitting its highest level since January earlier this month, ED has pulled back slightly as investors rotate from conservative utilities into more aggressive stocks. If the market continues to strengthen, the stock will likely continue to trade in a choppy range between 72.50 and 80. (ED is still above its 50-day moving average.) ConEd isn’t a fast grower, but the dividend is as stable as they come. Hold for safe income.


HOLD – Ecolab (ECL 150 – yield 1.1%) – ECL has remained above its 50-day line since reporting second-quarter earnings. The stock is close to the top of its trading range, and almost broke out yesterday. I’d put ECL back on Buy on a definitive breakout past 150 or another successful test of support around 140. Ecolab is a Dividend Aristocrat with a 32-year history of dividend growth. The company sells cleaning and other products to the foodservice, hospitality and industrial sectors (among others). Analysts expect 7% sales growth and 15% EPS growth this year, and 6% and 13% growth next year.


BUY – Invesco Preferred ETF (PGX 15 – yield 5.7%) – PGX is an ETF that holds preferred shares (a type of debt) and pays monthly distributions. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16, depending on the direction of interest rates. Buy under 15 for a good store of value and regular income.


BUY – McCormick & Co (MKC 123 – yield 1.7%) – After advancing for seven trading days in a row (closing at new all-time highs on each of them) MKC finally pulled back significantly last week. Stocks of most food companies declined after J.M. Smucker (SJM) issued lower-than-expected guidance. McCormick’s stock is now trading in a tight range around 123-124 and still looks very healthy. Use this pullback as a buying opportunity; MKC is in a strong uptrend, spent four weeks consolidating before the recent move, is expected to report 13% sales growth and 17% EPS growth this year. The company also has a 31-year history of dividend growth.


HOLD – McGrath RentCorp (MGRC 57 – yield 2.4%) – MGRC continues to flounder around 57, but remains above its 200-day, currently at 55. The company’s second-quarter results were excellent and revenues and earnings are expected to grow 5% and 36% this year, respectively. Still, the stock has been below its 50-day line since July, so if it breaks the 200-day and falls to new lows we’ll sell some of our shares to reduce risk. For now, Hold.


BUY – UnitedHealth Group (UNH 269 – yield 1.3%) – UNH hit new all-time highs on the last three trading days. The stock is up 3% since our last update, and our profit in the stock is a solid 20%. UNH will probably pull back slightly from here but is healthy, trending up steadily just above its 50-day line. The company has an eight-year history of dividend growth and has increased its dividend by 26% per year, on average, over the past five years. Also, UnitedHealth is reportedly in talks to buy specialty pharmacy operator Genoa Health and may also be bidding for health technology company athenahealth (ATHN). Buy on pullbacks for Safe Income.


BUY – Xcel Energy (XEL 48 – yield 3.0%) – Long-term interest rates ticked up over the past week, but remain well below their highs from earlier this summer, and XEL is pulling back normally after hitting its highest level of the year two weeks ago. The stock is trending up and is above both its 50- and 200-day moving averages. Long-term investors whose primary goal is safe income can buy some XEL here.

Closing Prices on August 28, 2018

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 estimated.


Where to Research Dividend Stocks

If you’re like most of our members, you do some stock research on your own, on top of reading the information in Cabot Dividend Investor. There are thousands of places to get free investing information online, and I’m sure you have your favorites, but today I want to share some of the sources that I have found most useful, reliable and unique. One of them may be able to give you a new perspective on some of the stocks you own.

Basic Information
For a quick look at any stock, I find Yahoo! Finance ( is a good starting place. It provides basic information like a chart, prices, trading volume and P/E ratios, and some basic earnings data. You can also find a lot of this information on most brokers’ websites.

Financial Data
Morningstar is the best free source of financial data I know ( Their site supplies 10 years of annual financial information for free, as well as five years of more detailed financials (and five quarters of quarterly data). If you want to look up payout ratios, margins, cash flow or debt levels, go here. It also has good valuation data, including current and forward P/E ratios, price to book ratios and PEG ratios.

Analyst Estimates and Opinions
You can find a large number of analyst estimates on both and Yahoo Finance. Both have some gaps in their knowledge—if you don’t see any analyst estimates on one, check the other—and usually have slightly different numbers. But you can get a good idea of earnings growth estimates and whether analyst estimates have been moving up.

I rarely read research reports, but if you’re interested in analyst opinions, many brokers provide their customers with access to analyst research.

Seeking Alpha is good at aggregating all the recent news, press releases and analyst comments about a stock. They’re also a reliable source of earnings call transcripts. If you create a portfolio on their site (free) you can also sign up for email alerts on your stocks. However, take “analysis” by Seeking Alpha contributors with a grain of salt; while some are intelligent, most are not professionals (and some have conflicts of interest.)

Technical Analysis
I don’t do as much technical analysis as some of my Cabot colleagues, so I usually find Yahoo! Finance charts work fine for my needs. I use yCharts when I want to make and export nicer-looking charts (creating more than a couple a month requires a premium subscription). They also have a wide range of economic data, so you can chart the utilities index against interest rates, for example.

Dividend Information
Yahoo Finance keeps a comprehensive list of every dividend a stock has ever paid (go to Historical Data, show Dividends Only, and set the date range to max.)

For pre-digested dividend information, like how many years in a row a stock has increased its dividend, go to Their site is also one of the most reliable and up-to-date sources of ex-dividend dates and payment dates.

Investing Ideas
Stock screeners are a great way to find new investment ideas you may not have thought of. (I definitely recommend them above trolling the internet for stocks other people are writing about.)

The free screener on offers plenty of functionality for most investors ( Just set some parameters, like yield, industry or EPS growth expectations, and the screener will return a list of stocks that may be interesting to you.

Other Information
Investopedia has loads of free articles on investing terms, concepts and strategies. It’s the place to go when you have questions like “what’s a standard deviation” or “how are MLP distributions taxed?”

MarketWatch compiles a nice list of weekly economic reports, and includes analyst expectations vs. the results (

Bloomberg is a good source of price information on commodities and currencies (

As for interest rate data, CNBC and MarketWatch both chart 10-year yields, a quick way to check which way interest rates are moving ( For more detailed information on interest rates, including the yield curve, I use the Treasury’s website ( And you can check (one measure of) rate hike expectations using CME Group’s FedWatch tool (

Cabot Website
Of course, I’d be remiss not to mention our own website,, where you can watch our weekly videos, read all the back issues of our advisories, and find great educational articles and timely market commentary. Prime members also get a weekly digest of our recommendations, a weekly Q&A, and a quarterly market report and conference call.

Your next issue will be published September 26, 2018
Cabot Wealth Network • 176 North Street • Salem MA 01970 • 978-745-5532

Neither Cabot Wealth Network nor our employees are compensated by the companies whose stocks we recommend. Sources of information are believed to be reliable, but are in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on the information assume all risks. © Cabot Wealth Network. Copying and/or electronic transmission of this report is a violation of U.S. copyright law. For the protection of our subscribers, if copyright laws are violated, the subscription will be terminated. To subscribe or for information on our privacy policy, call 978-745-5532, visit or write to