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Dividend Investor
Safe Income and Dividend Growth

March 20, 2024

It’s time for all investors to obsess about the Fed again. The Central Bank has its March meeting this week and Wall Street is on pins and needles waiting to hear what they might vaguely insinuate.

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Fed Week on the 4:30 Movie

It’s time for all investors to obsess about the Fed again. The Central Bank has its March meeting this week and Wall Street is on pins and needles waiting to hear what they might vaguely insinuate.

The market has been terrific. The S&P is already up 8% YTD and 26% since late October. It’s also been a rally with broad participation where most market sectors have delivered strong returns. The Fed could potentially end the rally. But it probably won’t.

The current consensus expectation is that the Fed will cut rates three times this year beginning around mid-year (presumably at 0.25% per cut). A previously expected March cut is now considered off the table and investors will be focused on whether the Fed statement puts a damper on the current expectation of three cuts later this year.

A Fed indication of less than three cuts would likely confirm recent investor negativity about the future of interest rates amid sticky inflation. It could possibly derail this rally. But I believe that is unlikely. The Fed will likely spew more ambiguous drivel as usual, and the market will probably be relieved over the lack of bad news.

But this interest rate and inflation conundrum isn’t going away even if we get through this Fed meeting with flying colors. Inflation is sticky and the Fed knows that historically inflation like this has come right back when the Fed takes its foot off the gas. I don’t believe the Fed will be as accommodating with rate cuts as the market currently expects, unless of course the economy tanks.

The rest of the year could be viewed in either a positive or negative way. You could say that the market will either deal with continued high interest rates or a tanking economy, both of which could be bad for stocks. Or you could take the view that if interest rates remain high, it means the economy is strong. If the economy does turn south, falling interest rates will compensate the market. Either of those scenarios could be good for stocks.

Given the recent market behavior, I believe it is likely that the market will find a way to be positive, especially with the tailwind of the artificial intelligence catalyst. Of course, extremes in either direction are a negative risk. Inflation could accelerate and send rates even higher, or the economy could fall into a recession. While those things are certainly possibilities, the middle ground is more likely, at least for the foreseeable future.

Recent Activity

March 6th
Xcel Energy Inc. (XEL) – Rating change “BUY” to “HOLD”
UnitedHealth Group Inc. (UNH) – Rating change “BUY” to “HOLD”

March 13th
Purchased Main Street Capital Corporation (MAIN) – $46.18

Current Allocation

Fixed Income19.5%

High Yield Tier

Brookfield Infrastructure Partners (BIP – yield 5.6%) – It’s been an uncharacteristically bad two years for Brookfield. The inflationary and rising interest rate environment beat up the utility sector and BIP wasn’t spared. But it is unlikely that rates will continue to move higher. Meanwhile, BIP has some of the most defensive revenues possible. It’s also been expanding into cell towers, data centers and foundries. BIPC had a strong rally at the end of last year but, unlike most of its conservative dividend-paying peers, it didn’t sell off this year. It just kind of went sideways. Meanwhile, Brookfield continues to deliver strong results. (This security generates a K1 form at tax time). BUY

Enterprise Product Partners (EPD – yield 7.2%) – The midstream energy partnership just hit a new 52-week high. The energy sector has been riding high recently and the midstream companies have been performing much better than most other income stocks. EPD is already up about 10% YTD. Looking forward, the company should deliver solid growth this year with anticipated steady hydrocarbons demand and recent acquisitions coming online. EPD has produced solid and steady returns in different market environments with a 17.45% return in 2023 after a strong bear market return of 15% for 2022. That massive distribution is extremely well supported, and the stock is still well below the all-time high despite much higher earnings. (This security generates a K1 form at tax time). BUY

Main Street Capital Corporation (MAIN – yield 6.3%) Although this newest portfolio addition is currently selling near the 52-week high, it is still reasonably priced at less than 1.6 times book value and most other valuation measures below the 5-year average. It also pays that safe and high dividend every single month with a strong possibility of supplemental dividends over the course of the year as well. MAIN should also provide strong total returns over time generated by its largely successful small business portfolio. BUY

ONEOK Inc. (OKE – yield 5.1%) – It’s a new all-time high. Unlike most energy companies, OKE has eclipsed the pre-pandemic high and broken out to a new level. OKE tends to be more volatile than its midstream energy peers and has more upside potential. It’s up over 35% since last May and 12% since the beginning of February. Meanwhile, the company is justifying the strong stock performance operationally. ONEOK reported a 42% increase in profits over last year’s quarter on higher LNG volumes and the contributions of the recent Magellan Midstream acquisition. The company also set ambitious guidance for this year. BUY

Realty Income (O – yield 5.9%) This legendary income stock has been a disappointment to say the least. It’s still light years below the pre-pandemic high and is actually not far from the pandemic low after stinking up the place for the last two years. Although revenues and profits have remained solid, it just hasn’t overcome the high interest rates. But the REIT is already beaten to a pulp and shouldn’t have much downside from here. And interest rates are highly likely to stop rising and very possibly start trending lower in the next year. It’s probably the very late innings of the recent market dynamic and O is well positioned ahead of a likely shift in the future. BUY

The Williams Companies, Inc. (WMB – yield 5.1%) Energy stocks have gotten hot, and WMB is up over the past few months to within pennies of the 52-week high. Returns have been solid and just what you hope for in a high-dividend stock in a challenging market environment for such things. The natural gas pipeline company has been very bouncy in an upward trend that began more than six months ago. It’s a stable high-yield stock and the company should deliver solid and dependable earnings in just about any economy. Business remains solid and not dependent on commodity prices. It pays a well-supported dividend and recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 3.5%) After a subpar year in 2023 when the company suffered steeply falling revenues because of the Humira patent expiration, ABBV is up 13% YTD and 29% since late November. Investors are now looking toward the promising future beyond as management expects moderate earnings growth this year and robust growth next year. Immunology replacement drugs Skyrizi and Rinvoq are expected to generate $16 billion this year (Humira peak sales were $21 billion) and $27 billion in 2027. ABBV has broken out of the old range to a new all-time high as investors are starting to price in the company turning the corner on the way to a bright future. BUY

American Tower Corporation (AMT – yield 3.3%) This cell tower property REIT has cooled off in March after its recent resurgence as interest rates are unlikely to come down as much as investors previously thought. Near term, stock performance will probably bounce around with the interest rate prognosis. But AMT also can ride the good AI news and buck the trend in the REIT sector. The cell tower properties will only grow in demand in the years ahead, and in any other interest rate environment, AMT will sell at a much higher price. BUY

Broadcom Inc. (AVGO – yield 1.7%) – The decline continues. AVGO is now down over 15% in just about two weeks. Some sort of pullback or consolidation was likely and even necessary at some point. AVGO was up over 100% in 2023 and had been 30% higher already this year. No stock goes straight up forever. The decline was precipitated by disappointing earnings.

Despite beating expectations on revenue and earnings, the company reported disappointing semiconductor sales for the quarter. But Broadcom maintained its full-year guidance for semiconductor sales and artificial intelligence demand grew even faster than expected for the quarter. When a stock is this hot, the news better be great. And it wasn’t. But the positive longer-term trajectory is still very much in place. I will consider upgrading AVGO to a buy again when it stops falling. HOLD

Digital Realty Trust, Inc. (DLR – yield 3.4%) The data center REIT is pulling back in March, along with many other technology stocks. It’s down over 6% for the month after soaring 13% in just two weeks at the end of February. DLR can get knocked around in the short term with the technology sector, but the prognosis is still very good. The data centers will benefit from increasing AI spending, providing Digital with an additional growth catalyst that could last for years. DLR is still well below the all-time high made at the end of 2021 before the inflation bear market. But earnings and prospects are much better now. BUY

Eli Lilly and Company (LLY – yield 0.7%) – Even this healthcare juggernaut flirted with a pullback but has since recovered. LLY had fallen about 4.5% after the announcement that the FDA decision regarding approval of its high-potential Alzheimer’s drug Donanemab will be delayed. A decision had been expected in the first quarter but will now likely be later in the year. But it’s just a delay, and the stock appears to be back in business. Lilly again killed on earnings and guided higher for 2024. The same great story is still very much in place. HOLD

Intel Corporation (INTC – yield 1.2%) – The red-hot chip maker finally cooled off after earnings guidance disappointed and the stock fell from the recent high. INTC had bounced back earlier this month but has fallen again to the recent low amid the selling in the overall technology sector. The bounty from new chips and the foundry business might not come as soon as optimistic investors had been hoping. The future is still bright though. There are great days ahead. Headline risk probably favors the upside for this stock in the months ahead with AI speculation still strong. BUY

McKesson Corporation (MCK – yield 0.5%) – The world keeps going on with Fed and interest rate speculation, the AI catalyst, and the crazy politics. But MCK just continues to forge quietly higher while no one seems to notice. It’s been making a series of new all-time highs for the last year and just hit another one this week. It’s already up over 12% YTD while investors focus elsewhere. Earnings were stellar with 15% revenue growth and 12% earnings growth, and McKesson raised guidance for 2024. The company dominates a market that grows all by itself because of the aging population. MCK continues to roll forward. It’s been in an uptrend since the pandemic. BUY

Marathon Petroleum Corporation (MPC – yield 1.9%) – The market may be cooling off, but MPC is absolutely sizzling. It’s up 28% YTD and over 15% in March alone. Energy is hot and has been the top-performing market sector over the last month as oil prices have been moving sharply higher. The stock tends to post good performance even when the energy sector struggles. But with the tailwind of a strong sector, the performance is huge. Profits are still strong, and the company is flush with cash from the boom times. We’ll see if the rally has more to go. BUY

Qualcomm Inc. (QCOM – yield 2.0%) Qualcomm is secretly one of the best semiconductor and AI stocks to own. It had been held back by cyclicality, both in semiconductors and smartphones. But the negative cycle is ending, and AI is coming to mobile devices. QCOM has been pulling back along with the sector over the past couple of weeks after a huge rally in which it had risen 22% YTD and 65% since late October. A breather is a healthy thing for the stock. The rest of the year looks strong as Qualcomm is also introducing new AI chips for PCs and smartphones that could be big sellers. BUY

UnitedHealth Group Inc. (UNH – yield 1.5%) This massive healthcare insurance stock plunged recently because of a cyberattack on its Change Healthcare unit that is threatening the security of patient information. The hack is also disrupting functions like discharges and prescriptions. It’s sending ripples through the industry as hospitals are struggling with payrolls and delayed approval for patient services. Although these issues will likely prove temporary and UnitedHealth has made progress in restoring its systems, the disruption is still ongoing and the extent of the damage is still unknown. UNH is downgraded to HOLD until there is more clarity on this bizarre issue. HOLD

Visa Inc. (V – yield 0.7%) This payment processing global goliath is thriving. V has been making a series of new highs since early November. It’s still in an uptrend that began in the fall of 2022. V was slow to recover from the pandemic because the global economy lagged. But now it’s making up for lost time. It’s up over 10% YTD and will likely continue rising slowly unless and until the economy tanks. Earnings last month beat estimates with upbeat guidance through 2024. HOLD

Safe Income Tier

Alexandria Real Estate Equities, Inc. (ARE – yield 4.1%) – This one-of-a-kind life science property REIT has cooled off in March after its recent resurgence as interest rates are unlikely to come down as much as investors previously thought. If there is worse-than-expected news from the Fed meeting this week, it could put the kibosh on the rise of the more defensive interest rate-sensitive stocks. But it’s mostly just short-term noise. ARE is a great income stock selling at the low end of historical valuations in an environment where interest rates have likely peaked and will most likely trend lower over the course of this year. BUY

NextEra Energy (NEE – yield 3.4%) – NEE has been moving higher this month. It had been a superstar performer before inflation and rising interest rates. It provides both safety from its best-in-class regulated utility business and growth from its considerable clean energy business. The utility reported strong earnings that exceeded expectations again last month and reiterated its growth projections for this year, near the top of the estimated range. The interest rate-related weakness should at least diminish going forward as rates have likely peaked. This stock is still oversold. It should have its day in the sun again, and probably before long. BUY

USB Depository Shares (USB-PS – yield 5.4%) – The party isn’t over for fixed income. Rates have still peaked and may trend lower for the year. The price has soared from the low of late October and has provided a 20% total return since being added to the portfolio in October of 2022. After the worst two years ever for fixed income, this preferred issue is well positioned for a further rebound. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 4.9%) – Ditto for VCLT, as evidenced by the recent 20% 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 may continue to trend lower. If the economic strength lasts, VCLT should remain stable and deliver a strong income. If the economy weakens, and/or rates move lower, there should be more upside for the price. BUY

Xcel Energy (XEL – yield 4.2%) – The alternative energy utility had a terrible week earlier in the month. The stock crashed 14% after it was reported that Xcel could be held liable for damages for the raging Texas wildfire, which is the worst in the state’s history and encompasses a land mass larger than the state of Rhode Island. Several utilities have been held liable for wildfires in recent years. Xcel has admitted that its equipment was likely involved in igniting the blaze. This weird development is also ongoing, and the scope of the damage is not known. NEE was downgraded to a HOLD until there is more clarity on the matter. The stock has bounced higher since the initial decline and has held steady. HOLD

High Yield Tier

Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on Close 03/19/24Total ReturnCurrent YieldCDI OpinionPos. Size
Brookfield Infrastructure Ptnrs. (BIP)3/29/1924Qtr.1.626.75%2943%5.60%BUY2/3
Enterprise Product Partners (EPD)2/25/1928Qtr.2.017.14%2950%7.00%BUY1
Main Street Capital Corp. (MAIN)3/13/2446Monthly2.886.24%460%6.30%BUY1
ONEOK Inc. (OKE)5/12/2153Qtr.3.967.47%7876%5.10%BUY1
Realty Income (O)11/11/2062Monthly3.085.00%52-1%5.92%BUY1
The Williams Companies, Inc. (WMB)8/10/2233Qtr.1.95.80%3826%5.03%BUY1
Current High Yield Tier Totals:6.40%37.80%5.80%

Dividend Growth Tier

AbbVie (ABBV)1/28/1978Qtr.6.27.90%180193%3.45%BUY1
American Tower Corporation (AMT)1/10/24209Qtr.6.83.30%197-6%3.30%BUY1
Broadcom Inc. (AVGO)1/14/21455Qtr.214.60%1238198%1.70%HOLD1/2
Digital Realty Trust, Inc. (DLR)7/12/23118Qtr.4.884.10%14224%3.40%BUY1
Eli Lilly and Company (LLY)8/12/20152Qtr.5.23.40%773433%0.70%HOLD1/2
Intel Corporation (INTC)3/9/2248Qtr.0.51.00%42-6%1.20%BUY1
McKesson Corporation (MCK)10/11/23457Qtr.2.480.50%53417%0.50%BUY1
Marathon Petroleum Corp. (MPC)11/8/23143Qtr.3.32.30%19738%1.70%BUY1
Qualcomm (QCOM)11/26/1985Qtr.3.23.80%164115%2.00%BUY1/3
UnitedHealth Group Inc. (UNH)4/12/23521Qtr.7.521.40%493-4%1.50%HOLD1
Visa Inc. (V)12/8/21209Qtr.2.081.00%28740%0.72%HOLD1
Current Dividend Growth Tier Totals:3.00%64.10%1.80%

Safe Income Tier

Alexandria Real Estate Equities (ARE)12/13/23126Qtr.5.084.00%124-1%4.10%BUY1
NextEra Energy (NEE)11/29/1844Qtr.1.873.80%6157%3.40%BUY1
U.S. Bancorp Depository Shares (USB-PS)10/12/2219Qtr.1.136.10%2120%5.40%BUY1
Vanguard LT Corp. Bd. Fd. (VCLT)1/11/2380Monthly3.64.50%771%4.90%BUY1
Xcel Energy (XEL)10/1/1431Qtr.2.086.70%52131%4.20%HOLD1
Current Safe Income Tier Totals:5.30%52.30%4.50%

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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.