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Dividend Investor
Safe Income and Dividend Growth

Cabot Dividend Investor Weekly Update

The economy is still solid and the trade war thaw is taking away a big headline risk for the market.

The Bulls Take Over


The market is at new all-time highs. Recession talk has subsided. And investors are bullish again.

The economy is still solid and the trade war thaw is taking away a big headline risk for the market. As well, pundits have for the most part stopped predicting a recession around the corner. Such talk has gone out of vogue, for now. And the market looks strong, as it has made a series of higher lows and higher highs since the selloff last December.

Cyclical stocks are feeling the love. The Industrial and Financial sectors have been top performers over the past month. While the market appears poised to rally for the rest of the year, I don’t see it really running up the score. After all, it’s still in the late stages of a bull market and recovery on the cusp of a contentious election year.

The new optimism is taking a toll on some of the safe market sectors, namely REITs and Utilities. These sectors have been among the best performers on the market over the past couple of years, but they’ve been the worst performers over the past month and week. Several stocks in the Cabot Dividend Investor portfolio have been affected. Is this just a normal consolidation or something more?

As of now, there is no justification to regard it as more than a temporary pullback. Over the past two years of strong performance these sectors have pulled back just about every time the market gets bullish. Investors are greedy now, but not that greedy. Things are still uncertain and these safe sectors are still in demand. But things can change.

Meanwhile, a shift toward value stocks is continuing and portfolio positions AbbVie (ABBV) and Valero (VLO) are benefitting mightily. I still love the way the portfolio is positioned with a combination of safe stocks with still-solid momentum and value stocks that are on the rise.

High Yield Tier

Brookfield Infrastructure Partners (BIP 50 – yield 4.0%) – The owner of infrastructure assets all over the world including utilities, transport, energy and communications businesses will announce third-quarter earnings tomorrow before the bell. Analysts are bullish on the potential for a report that will include newly acquired higher margin assets that should boost the bottom line. The stock looks solid as it recently made new all-time highs and still shows solid momentum. I lowered the rating to a HOLD last week because it has returned over 50% already this year and it is getting pricey to continue to acquire at the highs. HOLD.

Community Health Trust (CHCT 47 – yield 3.4%) – This small healthcare REIT that owns outpatient properties in non-urban areas announced third-quarter earnings yesterday. Earnings and revenues were up strongly from last year’s quarter but earnings missed consensus estimates, $0.12 versus $0.15 per share. The stock took a bit of a drubbing, down almost 5%. But it was a bad day for REITs in general and especially for the high flying ones, so it’s difficult to say how much of the selloff was earnings related. And it seems to be getting some of it back in early Wednesday trading. I sold another third of our CHCT position ahead of the announcement last week. The stock had gotten overpriced (up 60% year to date) and I wanted to protect the profit. We will continue to hold the remaining one-third position for now. HOLD.

Enterprise Product Partners (EPD 27 – yield 6.6%) – The energy company missed on earnings last week for the first time in the last five quarters. The miss was attributable to lower margins in the NGL unit but volumes were otherwise up across the board, which should drive up fee-based revenues going forward. The main drag on the stock has been the energy sector but things have picked up in the past week as oil prices rallied on OPEC cutbacks and trade war optimism. The company has $9.1 billion in projects under construction and $3 billion coming on line in the next six months. It’s a good opportunity to get in cheap. BUY.

STAG Industrial (STAG 30 – 4.6%) – This industrial REIT announced earnings last week that matched estimates. The stock was slightly higher after the announcement until it took a drubbing yesterday (down 2.56%) along with the rest of the REIT sector. STAG has outperformed the market this year but underperformed the REIT sector. The stock is a steady performer and has not gotten overpriced. HOLD.

Dividend Growth Tier

AbbVie (ABBV 81 – 5.4%) – Recent times have been good to AbbVie. The stock is up over 28% in the last three months, 12.6% in the past month and 6% in the past week. The company announced better-than-expected earnings last week. Humira sales were down less than expected and their new cancer drug sales were better than expected. Allergan also posted earnings in line with expectations and raised guidance and the merger is on track. But the main reason for AbbVie’s recent success is that it got ridiculously oversold and investors are wising up. The rotation into value stocks has also helped a lot. Even after the recent move the stock is still a great value at the current price, with a 5.4% yield to boot. BUY.

Rating change “HOLD” to “BUY”
Altria (MO 46 – 7.5%) – The cigarette maker announced an earnings beat last week. Earnings were up more than expected (+10.2%) for the quarter as higher prices, lower costs and share buybacks helped the bottom line. But Altria also announced a $4.5 billion write-off of its 35% JUUL stake that it paid $12.8 billion for last December. The write-off overshadowed the earnings beat and the stock fell almost 3% on the report. However, the stock is back where it was before the report because the bad JUUL news was already baked in. It’s already priced for a terrible JUUL scenario. Meanwhile, it offers great value, positive earnings growth and a safe 7.5% yield and value investors are taking notice. Because of the dividend, value and limited downside I am raising the stock back to a Buy. BUY.

Cheniere Energy Partners (CQP 43 – yield 5.5%) – The LNG terminal operator reported earnings that were roughly in line but lower than last year’s quarter while the nine-month earnings were significantly higher than last year’s first nine months. Quarterly earnings reflected the costs of the additional facilities up and running as well as maintenance expenses. The stock is down a bit since the announcement and shares are slightly under water since being added to the portfolio last November. But this is a stock that has defied a terrible energy sector and is up 27% on the year, beating the overall market. LNG exports remain a huge and growing part of the U.S. energy market and CQP will continue to benefit. Meanwhile, it pays a 5.5% yield and the quarterly dividend was raised again by a penny to $0.62, payable on November 14. BUY.

Crown Castle International (CCI 133 – yield 3.5%) – This stock has hit a rough patch. It’s down lately along with the other 5G REITs and the REIT sector in general. It’s down more than the overall sector because it has been a strong performer, falling 5.4% in the last week and 8.6% since October 18. The underlying story of steady business and growth as 5G infrastructure builds out in haste is intact. Earnings were strong last quarter. But REITs have been incredible performers over the past couple of years and there was likely to be some consolidation, especially as the market makes new highs and moves toward risk-on or cyclical stocks. We’ll have to wait and see if this turns out to be more than a consolidation in the sector. Regardless, the growing earnings and dividend still make this stock a Buy. BUY.

Valero Energy Corp. (VLO 101 – yield 3.7%) – This stock has been spectacular of late, up 40% since late August and 21% over the past month. The refiner was coming off a bad year for refining margins. But it is highly likely that things are improving heading into 2020 and beyond. The stock was in a temporary down leg of an upward cycle for American refiners as inventories improve and the IMO fuel standards for 2020 improve margins across the board. The stock broke out of the old range in a very bullish pattern and it could run for a while more. BUY.

Safe Income Tier

Alexandria Real Estate Equities (ARE 156 – yield 2.6%) – This life science and research lab REIT has had a slight blip in its ever-so-relentless slow trend higher. The REIT selloff has knocked it about 2.5% from its high but the upward chart pattern of the stock still remains intact. The third-quarter earnings report a couple of weeks ago was strong as well. This is a very solid REIT in the highly specialized life science and research lab niche that should continue to benefit amid the search for new medicines and treatments for the aging population. BUY.

Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.3%) BUY.

Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.7%)
These bonds remain steady and predictable, just like they should. They just keep rolling on at a steady price paying interest. These short-term investment grade rated corporate bond ETFs don’t pay much yield but they come as advertised, with consistent income and virtually zero volatility. BUY.

Invesco Preferred ETF (PGX 15 – yield 5.4%) – This preferred stock ETF is remaining solid. It is a high yielding, safe haven port in low interest rate world and an uncertain market. The lack of correlation to the stock and bond markets makes this a fantastic way to diversify. The ETF has moved off the highs as stocks make new highs and become more bullish, which is to be expected. BUY.

NextEra Energy (NEE 228 – yield 2.2%) – This utility/alternative energy juggernaut has had about a 4.5% pullback from the recent high. The stock is right at the 50-day moving average and well above the 200-day. Although it has pulled back along with the rest of the safe stuff as investors move more toward greed than fear, its upward pattern is still intact at this point. As well, the operational performance of the company continues to be strong. The stock is still overpriced in my opinion, which is why I took a profit on half the position last month. Again, we’ll see if this becomes a more substantial move in the market away from REITs and utilities. But for now, because the upward bias has not been broken, it’s still a Hold. HOLD.

Xcel Energy (XEL 61 – yield 2.5%) – Essentially, everything I just said about NEE applies to XEL as well. The utility did announce a new public offering of common stock. This can be bad because it diminishes shareholder value, the opposite of a buyback. However, this is one of those rare companies that has the ability to offset the disadvantage by earning strong returns with the proceeds. For now it is still a hold. HOLD.

cdi update