Fear Wanes, the Market Climbs
The market seems to be rebounding and stabilizing after a tumultuous couple of weeks. The escalation of trade tensions, a sputtering global economy and talk of the next recession spooked investors. But as fear wanes investors realize that money has no place else to go but stocks to earn a decent return and they come back into the market.
You’ll hear more and more talk about a recession. That’s because all recoveries eventually end in recession and all bull markets end in a bear market. And we are in the oldest recovery and bull market in history. The music will stop at some point. Naturally, investors are concerned and anticipating the next recession and bear market.
At this point, there is no recession in the foreseeable future. This late stage bull market and economic cycle could last quite a while longer. But we’ll get a bear market at some point. And that’s not the worst thing. In fact, if you have a longer-term investment horizon, bear markets present a fantastic opportunity to get in on the cheap ahead of the next bull market.
Consider this. If you put money into the market index at the market highs in 2007, ahead of the worst bear market and recession in the modern era, you would have since averaged about a 7.5% annual return on that money. And that’s with the worst possible timing. And if you added money along the way you could have done much, much better than that.
Of course, most recessions and bear markets aren’t nearly as bad as the financial crisis. The average bear market isn’t all that much worse than the selloff we saw in December. And you came out of that okay, right? The truth is that you will make great money over time with the top notch dividend stocks offered by this portfolio. The only real risk is that you’ll start listening to the whiney prognosticators on TV trying to make a name for themselves, and you lose focus.
But that won’t happen to you if you’re a lucky enough to be a subscriber to Cabot Dividend Investor. In the meantime, it looks like there isn’t an imminent market disaster looming. But things can always change and I’ll be watching closely for you. Regardless of what happens, I will be at your side, guiding you to great wealth over time.
High Yield Tier
BUY – Brookfield Infrastructure Partners (BIP 46 – yield 4.5%) – In this MLP you have a dividend that has risen each of the last nine years and a fantastic stock performance over the past decade. It also has solidly growing earnings in some of the safest, most recession-resistant assets on the planet—things like transportation, telecommunications, water and energy infrastructure. The stock is also within pennies of its all time high, achieved at the beginning of 2018, and could be on the verge of a breakout.
HOLD – Community Health Trust (CHCT 43 – yield 3.9%) – Nothing seems to stop this small healthcare REIT. The market loves REITs right now and this one operates in the defensive Healthcare sector which the market also digs. In addition, the smaller size than its peers gives it more upside. Despite the fact that the stock has returned over 50% year-to-date it continues to move higher just about every week, even in a down market. It’s the Energizer REIT right now. We’ll see how long it can roll on.
BUY - Enterprise Product Partners (EPD 29 – yield 6.1%) – As usual, the American energy infrastructure giant is hovering at the top of the range in which it has traded since 2016. It has key resistance around the $30 level but just can’t seem to convincingly break over it. This is a rock solid company that is doing well even if the market is a little fussy about the energy sector. An estimated $44 billion per year will need to be spent on energy infrastructure to accommodate the new supply through 2035. Opportunities for growth abound. EPD has $5 billion in projects under construction and between $5 and $10 billion in development. That should provide ample growth to go with the 6%-plus yield.
HOLD – STAG Industrial (STAG 29 – yield 4.8%) – Sometimes great stock performance is all about being flat while the rest of the market goes down. Outperformance is just as important in a down market as it is in an up market. The operational performance of this industrial REIT continues to be stellar and the market loves REITs right now, especially the best ones. If the market gets uglier, this should hold up well and if it recovers this stock should participate.
Dividend Growth Tier
BUY – AbbVie (ABBV 68 – yield 6.4%) – Evaluatepharma is an outfit that rates the potential of new drugs. Encouragingly, Abbvie’s Skyrizi was the number one rated drug of the year and, this past week, a rheumatoid arthritis treatment from Abbvie, which was the top-rated drug pending approval, actually got the green light from regulators. As a result, the stock has moved over 6% higher in the past several days. This company has a spectacular pipeline. It should thrive in the years ahead. In the meantime, it sells at less than 8 times forward earnings and pays a 6.4% while you wait for the market to rediscover the stock.
HOLD – Altria (MO 46 - yield 6.9%) – This stock has been on the decline since early 2018. The cigarette maker faced steeper than expected cigarette volume declines because of competition from E-cigarettes. To counter the problem, Altria purchased a stake in marijuana company Cronos (CRON) late last year and then a 35% stake in E-cigarette giant JUUL. Lately news has been bad on those fronts too. Marijuana stocks have been falling and E-cigarettes are facing increased regulatory scrutiny. But I think the market is being short sighted. Marijuana has huge growth ahead. JUUL is expanding overseas where the potential is enormous. And the company can still offset lower cigarette volumes by raising prices.
HOLD – American Express (AXP 123 - yield 1.2%) – The credit card company stock is down 4% since its earnings announcement. Results were good but not great in the eyes of investors because the company didn’t raise guidance for the year. In addition, the global economy is sputtering—again. A bad global economy will hurt this company as it has in the past. I will watch that situation closely. But the stock can still behave well in the near term if the market rebounds. For now it’s a “HOLD”.
BUY – Crown Castle International (CCI 146 – yield 3.1%) – This cellular infrastructure REIT is really showing some down market chops. The 5G infrastructure build out will continue in haste regardless of the economy. As well, this particular REIT only operates in the U.S. and has no exposure to China. The defensive nature of this REIT is paying off big time right now. In the past month the stock is up 14.3% while the S&P 500 is in negative territory. You can play offense and defense at the same time and get a decent yield in the process.
BUY – Valero Energy Corp. (VLO 78 – yield 4.5%) – Recent behavior in the stock of this refiner has been the opposite story of CCI. While the market is down 2.1% over the past month, VLO is off 7.5%. There are a lot of things to like about this stock, but down market performance isn’t one of them. I like American refiners right now and this one in particular. They still have a big advantage with cheap and abundant U.S. crude oil feedstock. As well, there is a good chance profits rebound strongly in 2020 with the new IMO standards and other factors swinging back into favor. It’s worth being patient. Things can turn around very quickly in the refining business. But if the market looks like it will turn seriously south, I’ll reconsider.
Safe Income Tier
BUY- Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.3%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.8%)
This is the kind of market where you truly appreciate these bond funds. The prices never budge. 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 turn ugly you’re happy you have these. Holdings like these add intangible effects as well like giving you more confidence to stay invested in the rest of the portfolio.
BUY – Invesco Preferred ETF (PGX 15 – yield 5.4%) – This preferred stock ETF has held like a rock in the market tumult so far. It is a high yielding, safe haven port in the market storm. The lack of correlation to the stock and bond markets make this a fantastic portfolio holding in just about any market. The falling interest rates make it even more attractive on a relative basis. If you’re looking for a stable price and a strong yield this is a great holding.
HOLD – McCormick & Co (MKC 162- yield 1.4%) – The spice maker had been performing very well in a down market. But the stock fell 4.35% yesterday after JPMorgan downgraded MKC to “underweight” from “neutral” based on valuation. There is some truth to this. The stock is selling at significantly higher valuations than its five-year averages. But many other defensive stocks are as well and continue to move higher. MKC is up 35% over the past year because it has been able to take a lickin and keep on tickin. We’ll see if it recovers after this setback.
HOLD – NextEra Energy (NEE 220 – yield 2.3%) – This stock is showing real down market resilience. It just made a brand new all time high. In the past down month for the market, NEE is up 4.7%. It’s up over 25% in the past year while the market is only up 2.3%. It has all the properties of a safe, rock solid regulated utility with the addition of strong growth in its alternative energy business. It offers everything the market is looking for right now and should continue to thrive.
HOLD – Xcel Energy (XEL 63 – yield 2.6%) – Just about everything written about NEE applies to this similar but smaller utility. XEL has also taken the opportunity of a tumultuous market to make a new all time high. It’s been a stellar portfolio performer and it should continue to thrive. Even if the current selloff abates, investors will be spooked back into defensive companies like this once again. The lower interest rates are also propelling utilities higher. Times like this really exemplify what a wonderful holding this stock truly is. It delivers as advertised.
