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Dividend Investor
Safe Income and Dividend Growth

January 3, 2024

The new year is starting with big momentum. The S&P 500 had a torrid late-year rally where it soared about 16% between late October and the end of the year. Stocks closed out the year with nine straight up weeks, the longest streak since 2004.

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2024 Starts with Strong Momentum

The new year is starting with big momentum. The S&P 500 had a torrid late-year rally where it soared about 16% between late October and the end of the year. Stocks closed out the year with nine straight up weeks, the longest streak since 2004.

Here are the 2023 returns for the three major indexes.

S&P 500 24%
Nasdaq 43%
Dow Jones 14%

Most of the S&P 500 returns for the year came from the last two months. Prior to November and December, the market rally had been remarkably thin with almost all the positive returns coming from just seven large technology stocks. But the late-year rally was far broader, including many interest rate sensitive sectors that had struggled in the earlier part of the year.

The catalyst came from the perception of peak interest rates after the Fed indicated it was done hiking and later insinuated it would start lowering the Fed Funds rate in 2024. The benchmark 10-year Treasury rate fell from a peak of near 5% in late October to 3.87% at the end of the year.

The S&P closed the year within less than 1% of the all-time high set in the beginning of 2022. Sure, the S&P made up all the 2022 losses, but it has still gone nowhere in two years. The main reasons for the market struggles had been inflation and rising interest rates. But those two things are in retreat. The market appears to be overcoming the cause of its troubles and the economy is still solid.

With the market poised to break new ground and set new all-time highs, things look good at this point. But there are always risks. The economy could decelerate into recession. Inflation could reignite and rates could rise again. Anything is possible. But positive returns seem more likely than not in 2024.

The situation looks good for a lot of the defensive dividend stocks that had struggled most of the year. The interest rate sensitive stocks rallied strongly at the end of the year but remain well below past levels with solid upward momentum. Also, artificial intelligence is likely to remain a big factor in 2024 and further boost the portfolio’s technology stocks.

Recent Activity

December 6th
NextEra Energy, Inc. (NEE) - Rating change “HOLD” to “BUY”

December 13th
Purchased Alexandria Real Estate Equities (ARE)

Current Allocation

Fixed Income19.5%

High Yield Tier

Brookfield Infrastructure Partners (BIP – yield 4.9%) – It was a subpar year in 2023 for BIP. A return of just 6.55% for the year badly lagged all the market indexes as interest rate sensitive stocks were under pressure most of the year. But interest rates have likely peaked and are moving lower and BIP has come alive again. It’s up a whopping 47% since late October. BIP had been a safe superstar dividend performer until 2022. Now the high distribution and highly reliable infrastructure earnings are catching on again. It looks like the storm for BIP is over and 2024 should be a great year. (This security generates a K1 form at tax time). BUY

Enterprise Product Partners (EPD – yield 7.6%) – This midstream energy partnership isn’t thrilling but it has been coming as advertised. It posted a solid 17.45% return in 2023 after a strong bear market return of 15% for 2022. That massive 7.6% yield is very well supported and safe. Adding capital appreciation to that makes a fantastic income investment. The growth in profits and distributions is likely to continue as the partnership is expanding operations in the high-growth Permian basin. (This security generates a K1 form at tax time). BUY

ONEOK Inc. (OKE – yield 5.4%) – This midstream energy company stock has always been more volatile than its peers. Lately, that’s a good thing. OKE returned 12.7% in a year that was tough for dividend stocks. It is also within bad breath distance of the 52-week high, although it is still below the all-time high. While performance has been very bouncy, it should be on stronger footing in the improved market environment. ONEOK reported solid earnings and raised the guidance on projected consolidated earnings going forward. BUY

Realty Income (O – yield 5.4%) REITs had a crummy 2023 as interest rates rose higher for most of the year. The legendary income stock should be a great buy right now. It’s cheap, selling more than 30% below the all-time high set before the pandemic. There is upward momentum. It has moved about 30% off the bottom set in October. And interest rates have likely peaked, removing the main downside catalyst that has been in place for the past two years. And its retail staple properties, and new data center acquisitions, should produce reliable revenue in just about any economy. BUY

The Williams Companies, Inc. (WMB – yield 5.1%) The natural gas pipeline company reported strong earnings growth and moved to within pennies of the 52-week high. But WMB has pulled back a little bit over the last month as oil prices fell and the overall energy sector struggled. Business remains solid and not dependent on commodity prices. It pays a well-supported dividend (with 2.38 times cash flow coverage). Recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. This should be a solid holding in any environment. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 4.0%) It wasn’t a very good year for this biopharmaceutical company stock in 2023. It finished the year about even with a total return of -0.45%. But it was a challenging year with Humira losing patent protection in the U.S. Things should improve from here. In fact, ABBV finished the year strongly, moving about 14% higher in the last month to the highest level since last April.

The market likes that AbbVie is purchasing biotech company ImmunoGen (IMGN) for $10.1 billion Cerevel Therapeutics (CERE) for $8.7 billion. Both deals should enhance the already strong pipeline longer term. But its current pipeline should lift the stock sooner. The stock sells at a low valuation and investors sense that it might turn the Humira corner sooner ahead of a very bright future. BUY

Broadcom Inc. (AVGO – yield 1.9%) – The already stellar performing fabless chip and software company stock got red hot again at the end of the year. AVGO rocketed more than 26% higher in a two-week period last month and finished 2023 up 103%. The latest surge was because the company reported earnings that impressed the market. Earnings remained solid and Broadcom also cited future earnings gains from its recent VMware acquisition as well as the potential to double AI revenue from $4 billion in 2023 to over $8 billion in 2024. HOLD

Digital Realty Trust, Inc. (DLR – yield 3.6%) This data center REIT has pulled back a little from the recent high. Even though REITs had a terrible 2023, DLR returned 39% for the year. It looks like REITs have bottomed out and are on their way higher as interest rates have likely peaked and have been falling. Digital also has the additional catalyst of increasing AI spending and is getting a boost from the AI craze. DLR should have a solid 2024 with REITs performing better and AI still in focus. BUY

Eli Lilly and Company (LLY – yield 0.9%) – This stock is a superstar with a 2023 return of 60% and an average annual return of 52% over the last three years. But LLY has been in a sort of holding pattern for a couple of months. It’s not making new highs, but it doesn’t have a pullback of any significance either. It’s hanging tough at the high range after a big surge earlier in the year. Weight loss drug Mounjaro was approved by the FDA in November. Some analysts estimate it could potentially be a $20 billion per year drug. That would match the best-selling drug ever. It still has its Alzheimer’s drug up for FDA approval in the months ahead. HOLD

Intel Corporation (INTC – yield 1.0%) – This previously beleaguered and left-for-dead chipmaker stock has been reborn. INTC soared over 50% between late October and the end of the year and finished 2023 with a spectacular 93% return. Earnings indicate that Intel’s turnaround is well on track. The latest surge was prompted by optimism about its promising new AI PC chip. Several analysts believe it could spur an upgrade cycle in 2024 and beyond. The stock got dirt cheap, and investors are increasingly willing to bet on the company’s future. I expect this to be another strong year for Intel as the turnaround to profitability comes to fruition. BUY

McKesson Corporation (MCK – yield 0.5%) – Quietly, this pharmaceutical distributor company stock has risen to a new all-time high after rising 24% in a crummy year for the healthcare sector. This is a company with earnings that should continue to thrive even if the economy hits the skids this year. It’s also encouraging that it performed well in a 2023 market that left most healthcare stocks behind. The company is basically an oligopoly in a market that grows all by itself with the aging population. The stock has an amazing track record, and it should continue to thrive in 2024. BUY

Marathon Petroleum Corporation (MPC – yield 2.2%) – This newly added oil refiner has blown away the performance of its peers and the overall market for several years. Even though the energy sector posted a negative return for 2023, MPC returned a solid 30% for the year. While the environment can vary from quarter to quarter, it should remain an overall profitable environment for refiners over the next several years. It’s good to have something in the portfolio that benefits in case the economy continues to be stronger than expected. BUY

Qualcomm Inc. (QCOM – yield 2.2%) Although QCOM was a technology laggard in 2023 with a 34% total return, it has been coming alive lately. It soared about 40% higher between late October and the end of the year. I believe this is a company that will benefit from the AI revolution later than the 2023 movers and shakers. But it will come to mobile devices. Qualcomm is introducing new AI chips for PCs and smartphones that could be big sellers next year. It’s looking like 2024 could be a much better year. QCOM has already started to ascend but it remains a long way from the all-time high. BUY

UnitedHealth Group Inc. (UNH – yield 1.4%) This healthcare insurer has a spectacular long-term track record but has struggled somewhat with just a 1% return in 2023. Most healthcare stocks have struggled in the 2023 market for a host of reasons. But those reasons are unlikely to persist going forward. This stock has a stellar track record and can perform well in a slowing economy. UNH could make up for lost time as different stocks continue to come back into favor. BUY

Visa Inc. (V – yield 0.8%) This payment processing company stock enjoyed the late-year rally. V soared 13.5% between late October and the end of the year, making a series of new all-time highs. Visa is loving the soft landing euphoria. It has been one of the very best financial companies to own but was held back by the pandemic and last year’s bear market. But earnings have been stellar. International business and travel are thriving and driving earnings higher. It has a strong business that should remain solid in all but a recessionary environment. HOLD

Safe Income Tier

Alexandria Real Estate Equities, Inc. (ARE – yield 4.0%) – The Fed’s indication of three rate cuts next year added another up leg for some of the best interest rate sensitive stocks. ARE has soared over 40% since the low of late October. But we didn’t miss the boat. The stock is still more than 40% below the all-time high. The company also has a highly reliable and growing business that should thrive in any economy. It’s cheap with strong momentum ahead of a period of likely strong performance as interest rates abate. BUY

NextEra Energy (NEE – yield 3.1%) – NEE has been bouncing around. But the stock is still in a strong uptrend that began in early October and it’s up over 30% from the 52-week low. The clean energy utility delivered solid earnings and management reiterated previous growth projections and said the company expects to deliver earnings near the top of the expected range through 2026. This stock is still very oversold, especially considering interest rates have likely peaked. The stock has likely bottomed out and is now in a positive trend. BUY

USB Depository Shares (USB-PS – yield 5.7%) – Recent developments have been great news for this and other fixed-rate investments. Interest rates appear to have peaked which means the selling is over in fixed income and prices are likely to rise as rates fall. The price has soared 22% since late October. And USB-PS has now returned 12% since being added to the portfolio a little over a year ago despite the rising interest rate environment. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 4.9%) – Falling interest rates are also a huge positive for VCLT, as evidenced by the recent 19% price surge. This long-term bond fund is very sensitive to interest rates. It held up relatively well in the rising rate environment and now rates are trending lower. After two of the worst years ever for the bond market, the rebound should continue next year. BUY

Xcel Energy (XEL – yield 3.3%) – This clean energy utility stock has been trending higher since the beginning of last month. The low may be in. XEL had a convincing 17% move off the low. But, like NEE, XEL came under pressure last week as analysts expressed concern about the solar energy business amid the current high interest rates. But this is one of the best utility stocks to own and the recent debauchery may prove to be very temporary. XEL still sells near the lowest levels of the past several years and now has positive momentum. BUY

High Yield Tier

Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on Close 12/29/23Total ReturnCurrent YieldCDI OpinionPos. Size
Brookfield Infrastructure Ptnrs. (BIP)3/29/1924Qtr.1.536.38%3145%4.90%BUY2/3
Enterprise Product Partners (EPD)2/25/1928Qtr.27.14%2633%7.60%BUY1
ONEOK Inc. (OKE)5/12/2153Qtr.3.827.20%7051%5.40%BUY1
Realty Income (O)11/11/2062Monthly3.075.00%576%5.36%BUY1
The Williams Companies, Inc. (WMB)8/10/2233Qtr.1.795.40%3514%5.14%BUY1
Current High Yield Tier Totals:6.20%26.00%5.90%

Dividend Growth Tier

AbbVie (ABBV)1/28/1978Qtr.5.927.60%155148%4.00%BUY1
Broadcom Inc. (AVGO)1/14/21455Qtr.18.44.00%1116175%1.90%HOLD1/2
Digital Realty Trust, Inc. (DLR)7/12/23118Qtr.4.884.10%13515%3.60%BUY1
Eli Lily and Company (LLY)8/12/20152Qtr.4.523.00%583299%0.90%HOLD1/2
Intel Corporation (INTC)3/9/2248Qtr.0.51.00%501%1.00%BUY1
McKesson Corporation (MCK)10/11/23457Qtr.2.480.50%463-2%0.50%BUY1
Marathon Petroleum Corp. (MPC)11/8/23143Qtr.3.32.30%1486%2.20%BUY1
Qualcomm (QCOM)11/26/1985Qtr.3.23.80%14585%2.20%BUY1/3
UnitedHealth Group Inc. (UNH)4/12/23521Qtr.7.061.40%5262%1.40%BUY1
Visa Inc. (V)12/8/21209Qtr.1.80.90%26026%0.80%HOLD1
Current Dividend Growth Tier Totals:2.90%64.10%1.90%

Safe Income Tier

Alexandria Real Estate Equities (ARE)12/13/23126Qtr.5.084.00%1272%4.00%BUY1
NextEra Energy (NEE)11/29/1844Qtr.1.873.80%6154%3.10%BUY1
U.S. Bancorp Depository Shares (USB-PS)10/12/2219Qtr.1.136.10%2012%5.70%BUY1
Vanguard LT Corp. Bd. Fd. (VCLT)1/11/2380Monthly3.64.50%804%4.90%BUY1
Xcel Energy (XEL)10/1/1431Qtr.2.086.70%62170%3.40%BUY1
Current Safe Income Tier Totals:5.30%60.00%4.30%
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.