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Dividend Investor
Safe Income and Dividend Growth

September 20, 2023

The surprisingly strong market of 2023 has been sputtering. The S&P 500 moved lower in August and is lower so far in September. But there’s no alarming selloff. The index is 3.6% lower than it was at the end of July. It’s mostly just a pause so far.

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The Market Can’t Decide

The surprisingly strong market of 2023 has been sputtering. The S&P 500 moved lower in August and is lower so far in September. But there’s no alarming selloff. The index is 3.6% lower than it was at the end of July. It’s mostly just a pause so far.

September can be an ugly month as sobered-up and cranky investors take a fresh look at things with a sour attitude. But that September mood has barely put a dent in stock prices. It’s more like investors can’t decide what to think.

Inflation is way down and the Fed is almost done hiking and there’s no recession in sight. That good news propelled stocks higher in the first half of the year. But the still-strong economy invites other issues. Energy prices are sharply on the rise. And interest rates are near the highest level in 15 years.

Rising energy prices are inflationary and could reignite the Fed’s hawkish side. These high interest rates are likely to start to bite. It takes a while for higher rates to filter through the economy and the pain may just be getting started. If current rates don’t slow the economy, it seems likely that will stay high or rise further until they do.

The artificial intelligence boom is a strong growth catalyst for technology stocks, the market’s largest sector. But it might not be enough to counter the negative effects of a slowing economy. Investors may not be able to decide what to think for the rest of the year.

It’s almost impossible to figure out the direction of the market in the near term. A better bet is to look for good stocks at cheap prices. Sure, it’s a new bull market for the indexes. But it is still a bear market in certain defensive sectors. Certain utility stocks are selling at the cheapest valuations in years ahead of a likely slowing economy, typically a period of relative outperformance.

The “BUY” rated portfolio stocks NextEra Energy (NEE) and Xcel Energy (XEL) have been moving off the lows and may be beginning a new uptrend.

Recent Activity

August 29th
Invesco Preferred ETF (PGX) – Rating change “BUY” to “HOLD”

Current Allocation

Fixed Income20%

High Yield Tier

Enterprise Product Partners (EPD – yield 7.4%) – EPD keeps humming along and is within pennies of the 52-week high. After a stellar 2022 in a bear market, EPD has returned over 18% YTD. Energy stocks have made a strong comeback as oil prices have trended higher and are continuing to rise on an almost daily basis. We’ll see how high oil prices go in the fall, but Enterprise should continue to have the right stuff going forward as earnings should be resilient in almost any economy. (This security generates a K1 form at tax time). BUY

ONEOK Inc. (OKE – yield 5.7%) – Energy has perked up again after a lull following the sector’s spring and summer surge. OKE looked like it had run out of gas after a strong summer, but the stock has soared over 7% in the past couple of weeks. The midstream energy company reported solid earnings and raised earnings guidance for the year. Longer term, the stock looks solid as the company is expected to grow revenue by an average of 10% per year over the next three years. HOLD

Realty Income (O – yield 5.7%) It’s ugly for this legendary monthly income stock. The REIT has had a bad year that keeps getting worse. Defensive dividend stocks are out of favor and O just hit not only a 52-week low but the lowest price since the heart of the pandemic three years ago. Yet earnings were solid with a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties. This is now a very high-yielding stock with an excellent historical track record selling near the lowest valuations at which it ever sells. BUY

The Williams Companies, Inc. (WMB – yield 5.2%) The midstream energy company stock moved sharply higher in the summer until leveling off around the middle of August. Like OKE, it appeared to have run out of gas but has resumed upside momentum this month. The recent strength in the overall sector because of rising energy prices is reigniting further upside. Earnings were solid and recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. BUY

Dividend Growth Tier

AbbVie (ABBV – 3.9%) The cutting-edge biopharmaceutical company stock has also been moving higher again after a sideways August. ABBV just hit a new high since it came crashing down in the spring after disappointing earnings. The stock is having a crummy year but not as bad as expected. It’s only down about 3% YTD. But this is crunch time in the year of the Humira patent loss with shrinking revenues. So far, there is minimal pain. On the other side of this year is a hugely promising future. BUY

Broadcom Inc. (AVGO – yield 2.2%) This AI juggernaut has cooled off since the big surge in the spring and early summer. That is to be expected and the stock has still returned a stellar 54% YTD. It started bouncing around in a sideways fashion but at the much higher price levels. It hasn’t really given up much after the surge. A stock can’t stay red hot for long. Maintaining the higher price levels is a very good sign and the stock should have a great future. HOLD

Brookfield Infrastructure Partners (BIP – yield 4.8%) – The tough times for safe stocks continue. Despite strong operational performance in a period of shrinking earnings for most companies, BIP continues to wallow near the 52-week low. But these periods of bizarre underperformance never last. Sure, the stock could languish for a while longer, but it is highly likely to be a lot higher a year from now. Brookfield is targeting 10% average earnings growth and 5% to 9% distribution growth over the next several years. (This security generates a K1 form at tax time). BUY

Digital Realty Trust, Inc. (DLR – yield 3.8%) This data center REIT has pulled back a little so far this month. But it is still in a sharp uptrend that began in May when it improved its finances and secured the dividend by selling assets. The market may not have priced in the additional growth catalyst Digital is likely to get from significantly increasing artificial intelligence spending. We’ll see if this recent uptrend still has legs. But even if the stock pauses, the longer-term trajectory should be strong. BUY

Eli Lilly and Company (LLY – yield 0.8%) – Even LLY is cooling off a little bit, for LLY. It’s still up 3.6% for the month of September. But it has pulled back about 4% from the new high made earlier this month. It’s still living around a much higher price level as investors refuse to cool on this stock. It has two potential mega-blockbuster drugs up for FDA approval this year as well as stellar earnings growth for the next several years. HOLD

Hess Corporation (HES – yield 1.1%) The energy exploration and production company stock has been bouncing around after hitting a new 52-week high last week. But earnings are highly levered to energy prices, and crude oil prices keep climbing with no signs of stopping. West Texas Intermediate (WTI), the U.S. benchmark, hit $93 per barrel on Tuesday, the highest level since last November. That’s the main catalyst. Crude prices have been rising sharply higher since the end of May and HES is up 34% since late June and 15% since late August. BUY

Intel Corporation (INTC – yield 1.3%) – This former long-time loser has been hot stuff lately. INTC is now up over 45% YTD. The stock is higher recently because the company raised third-quarter earnings guidance and the company received a prepayment from a “large unnamed customer” to secure capacity at its foundry for producing semiconductors. It demonstrates the tangible viability of the company’s foundry plans and makes success and higher revenues for the business likely to come sooner. INTC is being increasingly seen as a cheap stock with a bright future. BUY

Qualcomm Inc. (QCOM – yield 2.8%) The chipmaker stock continues to stink up the place. It has returned just 5% YTD while the technology sector is up almost 40% over the same period. The sector is being driven by stocks with exposure to AI that are benefiting right now. It’s a little soon for Qualcomm. The company is highly dependent on smartphones. And sales have been falling as the 5G cycle comes to an end and the global economy is sputtering. But smartphone sales may have bottomed out and QCOM could benefit mightily and move fast when things turn around. BUY

Tractor Supply Company (TSCO – yield 2.0%) The farm and ranch company stock has been getting slapped around. It’s down 4% in just the last week as investors are worried about the continued resiliency of the consumer. But Tractor’s rural consumers have already been weak for a while and the company has been successfully compensating with its vast array of staple products. Last quarter, the company delivered 8.5% EPS growth while average S&P 500 earnings were down. TSCO should be solid in just about any environment with a low beta and a highly resilient product base. BUY

UnitedHealth Group Inc. (UNH – yield 1.5%) UNH is struggling along with just about every other defensive stock this year. The high interest rates and soaring technology sector have diminished investor interests. But operational performance is stellar and UNH is a superstar that has blown away the returns of the overall market over the past five- and ten-year periods. Sectors always go in and out of favor. And UNH is dirt cheap ahead of a likely slowing economy, which tends to be a period of market outperformance for the stock. BUY

Visa Inc. (V – yield 0.7%) V recently made a new 52-week high. The stock remains in a slow uptrend that began way back in October. The company loves the strong consumer and the increasing expectation of a soft landing. It seems like only a serious economic slowdown or recession can stop this stock. And that might not happen. Good economic news could propel the stock to another level. It is also capable of holding its own of the market flounders, as it did last year. HOLD

Safe Income Tier

Invesco Preferred ETF (PGX – yield 6.5%) – Longer-term rates have moved near the recent high again as a recession appears less likely in a still-strong economy. Rates could be near the peak and it’s probably a good time to buy in terms of that dynamic. However, PGX has a lot of exposure to the banking sector and could be under pressure if the high interest rates trigger more bank troubles in the fall. HOLD

NextEra Energy (NEE – yield 2.7%) – The weakness might be ending as NEE has made a move off the bottom. This stock is still wallowing near a multi-year low, but it has historically been a superstar performer. NEE moved above the low last week and may be finally perking investor interest. The utility grew earnings 8.6% in the second quarter and 11% in the first half versus the same periods last year. It also has predictably solid earnings going forward because of a considerable project backlog. It’s a great stock that is just out of favor right now and selling near a multi-year low. BUY

USB Depository Shares (USB-PS – yield 5.9%) – This preferred issue has bounced around since being added to the portfolio. It took an unjustifiable hit during the banking issues. But it has mostly moved conversely to interest rates. But this security has outperformed other investment-grade, fixed-rate investments. Interest rates are near the highest level since 2007. This is a good time to buy. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 4.7%) – There could be some near-term turbulence with the price on the way to solid longer-term returns and diversification. The fund is holding up well in the recent rising interest rate environment and should benefit if and when rates come back down. BUY

Xcel Energy (XEL – yield 3.6%) – This clean energy utility hasn’t fared any better than NEE in a very tough market for utilities. XEL had been trending lower since the beginning of April and hit a new 52-week low at the beginning of the month. But XEL has moved sharply off the low in the past couple of weeks. This is one of the best utility stocks to own and the dark days may be turning around. XEL is still selling near the lowest valuations in years in an expensive market and ahead of a likely slowing economy. BUY

High Yield Tier

Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on Close 9/18/23Total ReturnCurrent YieldCDI OpinionPos. Size
Enterprise Product Partners (EPD)2/25/1928Qtr.1.98.30%2735%7.40%BUY1
ONEOK Inc. (OKE)5/12/2153Qtr.3.747.20%6849%5.70%HOLD1
Realty Income (O)11/11/2062Monthly2.984.20%54-1%5.72%BUY1
The Williams Companies, Inc. (WMB)8/10/2233Qtr.1.75.30%3412%5.20%BUY1
Current High Yield Tier Totals:6.30%23.80%6.00%

Dividend Growth Tier

AbbVie (ABBV)1/28/1978Qtr.5.644.80%154146%3.85%BUY1
Broadcom Inc. (AVGO)1/14/21455Qtr.16.42.60%850102%2.20%HOLD1/2
Brookfield Infrastucture Ptrs (BIP)3/26/1924Qtr.1.443.60%3257%4.80%BUY2/3
Digital Realty Trust, Inc. (DLR)7/12/23118Qtr.4.884.10%12810%3.80%BUY1
Eli Lily and Company (LLY)8/12/20152Qtr.3.921.30%571292%0.80%HOLD1/2
Hess Corporation (HES)5/10/23135Qtr.1.751.30%16321%1.10%BUY1
Intel Corporation (INTC)3/9/2248Qtr.1.461.00%38-16%1.30%BUY1
Qualcomm (QCOM)11/26/1985Qtr.31.50%11346%2.80%BUY1/3
Tractor Supply Company (TSCO)8/9/23224Qtr.4.121.80%210-6%2.00%BUY1
UnitedHealth Group Inc. (UNH)4/12/23521Qtr.6.61.30%486-6%1.50%BUY1
Visa Inc. (V)12/8/21209Qtr.1.50.70%24519%0.74%HOLD1
Current Dividend Growth Tier Totals:2.20%64.10%2.30%

Safe Income Tier

Invesco Preferred ETF (PGX)11/9/2211Monthly0.736.50%116%6.50%HOLD1
NextEra Energy (NEE)11/29/1844Qtr.1.661.70%6872%2.70%BUY1
U.S. Bancorp Depository Shares (USB-PS)10/12/2219Qtr.1.136.10%197%5.90%BUY1
Vanguard LT Corp. Bd. Fd. (VCLT)1/11/2380Monthly3.64.50%74-5%4.70%BUY1
Xcel Energy (XEL)10/1/1431Qtr.1.952.80%58151%3.60%BUY1
Current Safe Income Tier Totals:3.80%56.30%4.20%
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.