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Dividend Investor
Safe Income and Dividend Growth

January 4, 2023

Good Riddance 2022

A terrible year in the market just ended and it is highly likely that this year will be much better. That’s good news. The bad news is that the first part of 2023 may be just like 2022.

The results are in. The indexes returned the following for 2022; S&P 500 (-19.4%), Dow Jones (-9%), and the Nasdaq (-33%). It was the worst year for stocks since the financial crisis year of 2008. Plus, many individual stocks were down far more than the indexes.

But that’s about as bad as it gets. And this portfolio vastly outperformed the indexes. We weathered the storm well, and a year from now we should be looking back at a far better year with much higher returns overall.

But the year might take a while to get going. There is still too much uncertainty regarding inflation, the Fed, and the severity of a likely recession. The market still can’t see past that mess. Until it can, there could be more downside left in this bear market. But the market tends to anticipate six to nine months ahead. At some point in 2023, there should be clarity beyond high inflation and recession and a sustainable rally.

Most down years are followed by positive years. The average bear market has lasted around 15 months and this one is already a year old. There should be great opportunities in the year ahead. Many great stocks have gotten cheap.

But this portfolio will remain conservatively invested for now. It seems unlikely that stocks can mount a sustainable rally capable of leading out of the bear market until there is more clarity on inflation and the severity of a likely recession.

High Yield Tier

Enterprise Product Partners (EPD – yield 7.9%) – The performance may seem disappointing and uneventful. The price is well off the May high and at the same level it was in June of 2021. But EPD returned 18.4% in 2022 while the S&P 500 delivered a -19.4% return. That’s about 38% market outperformance in the year. And it pays a massive distribution that’s safe. I expect the market outperformance to last well into 2023. (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 drifting lower since. OKE is also still well off the high of April. But after a stellar year in 2021, OKE has managed to return 18% in the 2022 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%) The legendary income REIT held up remarkably well in the latest round of selling, which took down just about everything else. Yeah, O had a negative single-digit return for 2022. But the REIT sector was down about 30% for the year. Investors appear to be 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 5.2%) This midstream energy company was the best of the lot in 2022, returning a whopping 33% for the year. WMB was built for the current environment. It pays a big income and thrives amid inflation and recession. 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. The defensive hospital property business and the stratospheric dividend yield should make this a desirable holding into this year. Hopefully, it already made the bottom in October. HOLD

Dividend Growth Tier

AbbVie (ABBV – yield 3.7%) This great healthcare company stock very quietly killed it in 2022. ABBV delivered a total return of 23.8% for the year in a bear market. Health care is a great place to be as the economy may well be bounding toward a recession. Concern for the Humira patent expiration this year has likely been overblown as AbbVie has 11 other drugs besides Humira that are on track to top $1 billion in net revenue this year. It also continues to sell at an extremely cheap valuation. HOLD

Broadcom Inc. (AVGO – yield 3.3%) – Broadcom reported 21% revenue growth and a 34% earnings increase over last year in the last quarter. Broadcom also topped guidance estimates for this quarter. While the technology sector is getting blasted again, AVGO moved higher last month and is still in an uptrend that started in October. It wasn’t a great year as the stock returned -13.5% for 2022. But the technology sector was down over 30% for the year, and many individual stocks were down far more than that. AVGO should move up fast when the overall tech environment improves. HOLD

Brookfield Infrastructure Partners (BIP – yield 4.7%) – Recent events have dragged the price of this infrastructure stalwart lower ahead of a likely period of historic outperformance. First, rising interest rates caused a huge selloff in defensive dividend stocks in the fall. Second, as most of those stocks bounced back, BIP continued to struggle because of the strong dollar. But a recession is likely to pressure rates lower. And Brookfield has crucial assets likely to perform very well in a recession as well as growth projects coming online. A strong dollar is already reflected in the price and BIP’s recession and inflation resilience should take center stage as the year progresses. (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 returned 34% in 2022 compared to the S&P 500 return of -19.4%. It outperformed the market by over 50%. The outperformance is 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 5.5%) – INTC has been a disaster. The fact that it had already sold off before the technology bear market didn’t spare it. Now it is absurdly cheap when considering its prospects. Things might get worse before they get better, 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. HOLD

Qualcomm Inc. (QCOM – yield 2.7%) It’s been a wild ride for this one-of-a-kind chipmaker. After returning over 25% in 2021, QCOM was down 38% in 2022. That said, QCOM has outperformed the market with a 36% total return since it was added to the portfolio in late November of 2019. And that’s even after an epic horrific year. Technology stocks can turn around fast and make up for lost time as the environment changes, and it likely will in the new year. Before long, the market, which tends to anticipate six to nine months ahead, may start pricing in a recovery. HOLD

Visa Inc. (V – yield 0.9%) – There are good things to be taken from a crummy 2022. The year’s bear market was terrible for cyclical and financial stocks. But V held up remarkably well under the circumstances, returning -3.4% for 2022. These have been bad times for a stock like V. It’s encouraging that it has held steady. And circumstances in the market are likely to get a whole lot better in 2023. V is typically one of the first stocks to recover when the market eventually turns. We endured a little pain en route to likely better performance in 2023. HOLD

Safe Income Tier

NextEra Energy (NEE – yield 2.0%) – True, NEE has leveled off over the past several weeks. But it also held strong in a very weak market. Defense is back. There’s something about a looming recession that turns investors toward the safest stocks. That’s why utilities are the second-best-performing market sector in 2022 and the best-performing over the last month. NEE is strong going into a period of historical outperformance for the stock. BUY

Xcel Energy (XEL – yield 2.8%) – This clean energy utility stock is still in an uptrend that began in October. It is up over 22% since the October low and posted a positive 6.44% return for 2022. That may not sound like much, but XEL outperformed the market by better than 25% last year. 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%) – After rallying sharply after being added to the portfolio as longer-term rates plunged, this preferred has moved back to the price at which it was initially purchased. I see this as another opportunity to lock in a 6% yield on investment-grade fixed income if you haven’t bought USB-PS already. Such rates may not last. As income investors, we don’t want to miss the best opportunity in the last 15 years to lock in a strong fixed rate. BUY

Invesco Preferred ETF (PGX – yield 5.9%) – 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 CostPrice on close 1/03/23Total 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%12-13%10.40%HOLD1/2
OKEONEOK Inc. (OKE)5/12/2153Qtr.3.746.00%6434%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%320%5.20%BUY1
Current High Yield Tier Totals:6.40%9.80%6.80%

Dividend Growth Tier

ABBVAbbVie (ABBV)1/28/1978Qtr.5.644.80%162152%3.70%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%3148%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%27-42%5.50%HOLD1
QCOMQualcomm (QCOM)11/26/1985Qtr.31.50%10736%2.70%HOLD1/3
VVisa Inc. (V)12/8/21209Qtr.1.50.70%2070%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%84107%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%70196%2.80%BUY2/3
PGXInvesco Preferred ETF (PGX)11/9/2211Monthly0.736.50%112%5.90%BUY1
Current Safe Income Tier Totals:4.30%76.40%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.