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Dividend Investor
Safe Income and Dividend Growth

Cabot Dividend Investor Weekly Update

A few wobbles finally appeared in the stock market last week, as overextended growth and momentum stocks took a well-deserved rest. Most other names remain healthy though, and most of our portfolio holdings are in consolidation mode at or near their highs.

A few wobbles finally appeared in the stock market last week, as overextended growth and momentum stocks took a well-deserved rest. Most other names remain healthy though, and most of our portfolio holdings are in consolidation mode at or near their highs. So while a broader pullback wouldn’t be surprising near-term, the bull market remains intact, and you should be taking advantage of it.

Elsewhere, odds of a March rate hike are up to 50%, which is great news for financial stocks. And the dollar finally took a breather last week as inflation expectations fell.

If you’re underinvested, you should be looking for new portfolio candidates that meet your investing goals today. In the High Yield Tier, GameStop (GME) and General Motors (GM) are offering good buy points for more aggressive investors, while Pembina Pipeline (PBA) and Verizon (VZ) offer high yields with lower risk. For investors seeking income plus capital appreciation, Carnival (CCL), Costco (COST), Prudential (PRU), US Bancorp (USB) and Home Depot (HD) are all poised for further gains this year. And for safe income investors looking to establish low-volatility long-term positions, PowerShares Preferred Portfolio (PGX) and Xcel Energy (XEL) are both buyable today.


BUY – Game Stop (GME 24 – yield 6.1%) – After trading around resistance at 26.50 for a few days, GME fell 8% yesterday amid a widespread selloff in brick-and-mortar retailers. The trigger was Target’s fourth-quarter earnings report, released yesterday morning, which revealed lower traffic and spending at the big box chain’s stores last quarter. Analysts suspect other store-based retailers are seeing the same trends, and retail stocks including GameStop (GME), Dollar General (DG), JC Penney (JCP), Best Buy (BBY), Barnes & Noble (BKS) and Williams-Sonoma (WSM) all sold off. GME found some buyers just below 24 in the afternoon, and closed the day at 24.44, 7.8% off Monday’s close. The stock remains above its January low of 22.25, and its 52-week low, set in November, of 20.10. And GameStop still hasn’t released 2016 earnings—the company’s fiscal year ends in January—so analysts will get some real data to digest soon. They’re currently expecting fourth-quarter EPS of $2.28 (down 5% year over year) and revenue of $3.11 billion (down 11.7%). For the full year, sales are expected to fall 7.5%, to $8.66 billion, while EPS are expected to decline 5.6%, to $3.68. A beat could be the catalyst GME needs to break through resistance at 26; a miss could delay the stock’s recovery and force us to reconsider our position. For now, GME remains a Buy for risk-tolerant, bargain-hunting high yield investors.

Next ex-div date: March 6, 2017 est.

BUY – General Motors (GM 37 – yield 4.1%) – GM was one of the harder-hit stocks last week, dropping 2.5% amid broad market weakness on Thursday and Friday. After a strong post-election advance, GM now faces resistance at 38 and 40. If you haven’t taken some profits off the table yet, you may want to do that now. Otherwise, just hold on and be patient.

Next ex-div date: March 8, 2017 est.

HOLD – Mattel (MAT 26 – yield 5.9%) – MAT continues to chug along right around 26. Buyers aren’t returning en masse yet, but the stock seems fairly immune to downside pressure, suggesting decent support from bargain hunters at these levels.

Next ex-div date: May 12, 2017 est.

BUY – Pembina Pipeline (PBA 32 – yield 4.5%) – Pembina reported earnings on Thursday afternoon. Fourth-quarter adjusted EPS of $0.28 beat the consensus estimate by one cent, and were 17% higher year-over-year. The company’s major infrastructure projects are on schedule and expected to contribute to significant earnings growth this year. Management plans to spend some of the extra cash flow on dividends as well, likely delivering larger dividend increases over the next few years. PBA continues to consolidate between 32 and 33, after blasting through resistance at on high volume two weeks ago. High yield investors can start a position here.

Next ex-div date: March 22, 2017 est.

BUY – Verizon (VZ 50 – yield 4.7%) – Verizon will be added to the high yield tier at today’s average price. The company is facing tough competition that has cut into profits, but is committed to rewarding investors through dividend payments. In addition, the stock has strong support here, near the bottom of its trading rage, and a reasonable forward P/E of 13. VZ is a buy for investors who want to add a high and reliable income stream to their portfolio at a reasonable price.

Next ex-div date: April 5, 2017 est.


BUY – Carnival (CCL 56 – yield 2.5%) – CCL continues to consolidate, building a strong base just above 55. Dividend growth investors who don’t own Carnival yet can start a position here.

Next ex-div date: May 24, 2017 est.

BUY – Costco (COST 177 – yield 1.0%) – Costco, whose fiscal year ends in August, will report second-quarter earnings and February sales results tomorrow, March 2, after the market close. Analysts are expecting EPS growth of 9.7%, to $1.36, and revenue growth of 6.0%, to $29.86 billion. COST is trading at all-time highs but the uptrend remains young; dividend growth investors can buy on pullbacks.

Next ex-div date: May 10, 2017 est.

BUY – Prudential Financial (PRU 111 – yield 2.7%) – Financial stocks remain strong, and PRU is consolidating just below all-time highs. A March interest rate hike could be a catalyst for further gains. Dividend growth investors can buy PRU here.

Next ex-div date: May 19, 2017 est.

BUY – Schlumberger (SLB 80 – yield 2.5%) – SLB continues to chop around right around 80, where it has support from its 200-day moving average. Long-term, the stock’s loose uptrend is intact, and oil prices remain stable. Dividend growth investors with moderate risk tolerance can buy SLB here.

Next ex-div date: June 2, 2017 est.

BUY – U.S. Bancorp (USB 55 – yield 2.0%) – USB is building a high sturdy base right around 55. If you don’t own it, you can buy here for dividend growth and additional capital gains this year.

Next ex-div date: March 29, 2017 est.

BUY – Wynn Resorts (WYNN 96 – yield 2.1%) – Las Vegas gaming revenues began growing quickly again in January, as Strip revenues rose 14%. And Macau’s revenues are expected to rise 10% in February, up from January’s 3% pace. WYNN is acting normally, and volatility-tolerant medium-term investors who don’t own it yet can buy here, in the middle of the stock’s trading range.

Next ex-div date: May 9, 2017 est.


HOLD – Automatic Data Processing (ADP 103 – yield 2.2%) – ADP has recovered from its post-earnings selloff and is trading back near its January highs. The job market continues to improve, and analysts expect ADP’s revenues to expand 6% this year.

Next ex-div date: March 8, 2017

HOLD – Consolidated Edison (ED 77 – yield 3.6%) – Utilities staged a little rally this week, as inflation expectations declined and some wobbles appeared in the broad market. ED is a Hold.

Next ex-div date: May 8, 2017 est.

BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.3%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.4%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 25 – yield 4.9%)
These four funds make up our bond ladder, a conservative strategy for owning fixed income that’s particularly good at preserving capital when interest rates are rising. Each ETF will mature at the end of the year in the fund’s name, and Guggenheim will distribute the net asset value (NAV) of the fund to shareholders at that point—just like getting your principal back when a bond matures. The investment-grade funds are currently trading at a slight premium to where they will likely mature, while the high yield funds are trading closer to their likely NAVs at maturity. At the end of each year, we’ll sell the maturing fund and reinvest into a new longest-dated ETF to preserve the bond ladder. Note that the last letter in each of Guggenheim’s ETFs corresponds to the maturity year, so if you’re constructing a four-year ladder starting in 2017, your funds should end in H, I, J and K, whether you’re using high yield or investment grade funds.

Next ex-div dates: all April 3, 2017 est.

BUY – Home Depot (HD 145 – yield 2.5%) – HD is consolidating after moving to all-time highs after last week’s stellar earnings report. The stock wasn’t affected by yesterday’s retail selloff; no one is eager to dump the stock today. Safe income and dividend growth investors can buy HD here.

Next ex-div date: March 7, 2017

BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.8%) – PGX is approaching its “par” value at 15, but can still be bought here. PGX is an ETF that owns preferred shares, a type of corporate debt that is typically high yielding and has a relatively low correlation to bond market moves. The ETF usually trades in a fairly low-volatility range between 14 and 16, and pays monthly dividends of about seven cents per share. Investors looking to add reliable monthly income (without capital appreciation) to their portfolio can buy PGX when it is trading below 15.

Next ex-div date: March 15, 2017 est.

HOLD – J.M. Smucker (SJM 142 – yield 2.1%) – SJM continues to trade above 140, holding onto the gains it made early last week during frenzied speculation about which grocery company will become Kraft Heinz’s next takeover target. The stock’s resilience, even as the excitement has faded, is a good sign. But problems moving pet food and Folgers brand coffee haven’t disappeared—we’ll keep it on Hold.

Next ex-div date: May 10, 2017 est.

BUY – Xcel Energy (XEL 44 – yield 3.1%) – I don’t expect XEL will have another week like the last one for a while—a 3% gain in five days is unusual momentum for the slow-moving utility. But we could still see some gains in the medium- and long-term; analysts expect revenues to grow 6.5% this year. And we’ll definitely see more slow-and-steady dividend growth.

Next ex-div date: March 21, 2017 est.

Closing prices as of February 28, 2017