Be Careful
Here comes the Fed. The FOMC is meeting this week and investors can hardly contain their euphoric bliss. In-the-know pundits are already factoring in a rate cut next month and more before the end of the year. The market rallied strongly yesterday as it salivated over the prospect.
I’m not so sure. In the interest of full disclosure, I’m not an expert on Fed speak. There are highly educated financial types out there who pore over every word of the Fed minutes. And they seem to believe a rate-cutting orgy is imminent. I’m skeptical. I don’t get anything like that from what the Fed has been saying.
It seems like a situation is developing where the market could be disappointed. The market doesn’t like to be disappointed. Prominent pundits also seem to believe there is a good chance of a trade deal with China in the near future. I don’t see that one either. I don’t see China agreeing to nada. Of course, I could be wrong. I hope I am.
In short, I see the market rallying on a lot of smoke-and-mirror, pie-in-the-sky bull duty. While it’s impossible to know for sure what will happen, I see the risks of a near term market disappointment skyrocketing. Be careful in the near term.
That said, I still feel good about the market over the remainder of the year. The economy is still strong—I believe stronger than the current consensus opinion is suggesting. But the relatively high level of uncertainty combined with the lack of more Fed rate hikes will continue to favor the defensive oriented dividend stocks.
High Yield Tier
BUY – Brookfield Infrastructure Partners (BIP 42 – yield 4.7%) – There’s a lot to like about this global infrastructure company right now. While the stock significantly outperformed the market in 2016 and 2017, it struggled last year. Now the company has an asset replacement strategy in place that should boost earnings and reignite the outperformance. It looks on track as the stock is up 26% so far this year. Valuations are still cheap relative to the market and its peers and the stock chart looks strong.
HOLD – Community Health Trust (CHCT 38 – yield 4.3%) – After pulling back a little bit during the market rebound a couple of weeks ago, the healthcare REIT is back in business. It’s once again flirting with new all time highs and looking strong. REITs in general have been strong over the past year but this stock has nearly tripled the return of its peers over the period. We will continue to ride the momentum.
BUY - Enterprise Product Partners (EPD 29 – yield 6.1%) – This energy infrastructure giant does nothing but grow earnings at a great clip and pay a well-supported monster dividend. Earnings revisions have been consistently higher, it has beat estimates the last three quarters and 26 out of 27 analysts that cover the stock rate it a buy. But while the stock has outperformed the market year-to-date, it has underperformed over the past couple of months. The reason is likely energy industry worries including the China trade war and trouble in Iran and Venezuela. These issues haven’t affected business but the market tends to punish the whole sector in the short term.
HOLD – STAG Industrial (STAG 31 – 4.6%) – This industrial REIT just keeps on going. It continues to forge to new highs in June after having outperformed the overall market and the REIT index in every measurable period over the past three years. It has a great niche in a sector of the market that has been doing well. It’s a little expensive here but we will continue to ride the momentum as long as it lasts. Plus, you get a 4.6% yield on a stock that goes ex-dividend at the end of this month.
Dividend Growth Tier
BUY – AbbVie (ABBV 78 – 5.5%) – The company believes cancer drugs Imbruvica and Venclexta can generate $9 billion in annual sales by 2025. In addition the company has two immunology drugs gaining approval this year that market research firm EvaluatePharma ranks the number 2 and number 3 drugs in its analysis of top new drug launches for 2019. AbbVie thinks the two drugs could bring in $10 billion a year by 2025. And those are just the all-stars. This is a great company with a bright future that pays a huge 5.5% yield for you to wait around.
BUY – Altria (MO 50 - $6.4%) – In addition to longer term growth opportunities from its stakes in the E-cigarette and marijuana businesses, Altria can also raise cigarette prices to counter the volume slippage. Its iconic Marlboro brand enables the company to raise prices, which offsets near term weakness in earnings. Wells Fargo has a $65 price target on the stock but given recent price action it’s a “you gotta believe” stock right now. The massive dividend makes it a little easier to be a believer.
HOLD – American Express (AXP 124 - yield 1.3%) – The credit card business is a great place to be as the world moves to increasingly cashless transactions. Amex has a high quality clientele with much less delinquency than average and it charges high, bankable fees. As long as the economy is okay and the market is on a solid footing this stock should continue to do well. I like the market outlook for the rest of the year but I’m still a little leery about the global economy, which is why the stock is only a HOLD.
BUY – Crown Castle International (CCI 135 – yield 3.3%) – The growth dynamics surrounding the 5G infrastructure build-out are amazing. This is a REIT that offers both defense and growth in an uncertain market. The stock continues to outperform both the overall market and its peers by significant margins and it’s already up 8% since being added to the portfolio. With anticipated 20% per year average earnings growth over the next five years, this stock should continue to perform.
Safe Income Tier
BUY- Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.2%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.7%)
There is nothing to say about these safe short-term bond ETFs. Isn’t that beautiful? They just keep rolling on at a steady price paying interest. When the market booms these ETFs seem like a waste and dead money but when things get ugly you’re happy you have these.
HOLD – Consolidated Edison (ED 88 – yield 3.4%) – This market gets scared and then it gets greedy. The investment narrative can turn on a dime with the latest headlines. But this boring utility just keeps paying a solid income and earning profits that never falter. Consider that over the past tumultuous year in the market ED has returned over 23% while the S&P return is just 6.3% over the same period. Utility stocks also get a huge boost from the Fed.
BUY – Invesco Preferred ETF (PGX 15 – yield 5.6%) – The high yield and lack of correlation to the stock and bond markets make this a nice portfolio holding and income generator. The stock price has barely budged for this entire year so far and that’s exactly what investors sign up for with this ETF. Enjoy the juicy yield and stable price in this uncertain market.
HOLD – McCormick & Co (MKC 154 - yield 1.5%) – The stock has pulled back slightly over the past week as the market has rallied. That’s okay. Today’s income oriented investor just loves this spice maker. It helps that the company is also growing its profit margins. That’s why it’s up almost 50% over the past year while the overall market has sputtered. The stock still offers solid defense and down market resilience. When you add momentum to the mix there is no reason not to continue holding. If it continues to rise into earnings at the end of the month I might reconsider holding on. But for now there isn’t any reason not to continue to hold this stock.
HOLD – NextEra Energy (NEE 205 – yield 2.4%) – This best-in-class utility had another strong week. The stock seems to hold up well when the market goes down but also participates in the market rallies. I like that very much. By the way, you just got a dividend and future payouts should continue to grow. The stock isn’t particularly cheap here but considering it’s perfect for the current market it has a good chance to trend still higher.
HOLD – Xcel Energy (XEL 60 – yield 2.7%) – This is a fantastic utility that offers dependable income and growth from its alternative energy business. I sometimes refer to XCEL as NEE junior. It does a similar type of business but the company is smaller and much less well know. That gives it more upside as new investors discover the stock. In the meantime, the momentum is great.
