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Dividend Investor
Safe Income and Dividend Growth

June 3, 2020

The S&P 500 is now up over 40% from the bottom in March and less than 10% from the all time high. Forget about a bear market. It’s not even a correction any more.


Let the Good Times Roll

Nothing seems to stop the upward march of this market. What pandemic? What protests? What recession?

The S&P 500 is now up over 40% from the bottom in March and less than 10% from the all time high. Forget about a bear market. It’s not even a correction any more.

It may seem odd that the market is flying while the economy is crashing. After all, there are 40 million new unemployed and the economy is predicted to shrink 30% to 40% in the second quarter. But it’s all about anticipation. And the market sees a booming recovery ahead.

The market usually looks ahead six to nine months. Typically, it anticipates a recession before the economy actually turns south, and goes down before the economy. Then it usually starts to turn higher while the economy is still in the doldrums because it anticipates recovery around the corner. But the process got skewed this time.

The market didn’t move down ahead of the economy because it couldn’t anticipate the pandemic. That’s why it fell 34% in record time. Because the recession is self inflicted by government mandated lockdown orders, it should recover quicker than a normal recession when those restrictions are lifted. So the market quickly moved from the bottom in anticipation of a recovery around the corner.

I have consistently warned in previous updates and newsletters that the market may have gotten ahead of itself. I still stand by that warning, even though the market seems on a mission to prove me wrong almost every day. But while it’s not possible to know what the market will do, it is still prudent to plan for the possibility of another downturn.

This newsletter has done so by targeting Visa (V) and Starbucks (SBUX) at below market prices in order to take advantage if that’s what transpires. But what if the market never looks back? Did you miss your chance to buy on the cheap?

I doubt it. Consider that if the market trends higher from here and does not move down significantly, we are in a new bull market. Bull markets typically last for many years and, historically, the first few months only represent about 10% of the move higher in bull market. And that just speaks for the overall market. There are still many stocks that are still wallowing in bear market territory, down 20% or 30% or more.

For now, enjoy the rally. And I’ll keep you posted.

High Yield Tier

Brookfield Infrastructure Partners (BIP – yield 4.7%) – The stock had a good week, up 3%. It continues to trend higher since the March low, like the overall market. The thing I like most about this infrastructure partnership is that its long life vital properties continue to earn consistently in any economy, and the state of the economy is highly questionable over the rest of the year. BIP should also be able to acquire new properties on the cheap during the global recession. It’s also still over 16% from the high and still a good buy. BUY

Community Health Trust (CHCT – yield 4.6%) – This fast-growing small healthcare REIT continues to trend higher in a very choppy fashion. For the past two-year and five-year periods the stock has significantly outperformed the market, but it has underperformed in this bear market, despite its healthcare properties being economically resilient. The underperformance is likely the result of overperformance during the bull market for both this stock and the REIT sector as a whole. But the strong growth made this a great stock before the bull market and likely will again when things normalize. And now it’s a lot cheaper. HOLD

Enterprise Product Partners (EPD – yield 9.6%) – Hard times in the energy sector will probably last for a while. But EPD should bounce back faster than the industry as a whole because it is involved in the piping and storage of oil and gas and not very exposed to commodity prices. As the economy restarts, the oil and gas will inevitably flow again, and so will EPD’s earnings growth. In the meantime, the dividend is rock solid and backed by a low payout ratio, one of the strongest balance sheets in the industry, and more than enough cash to pay the distribution until the economy rebounds. You get a safe 9.6% yield and an extremely high probability of capital appreciation over time. It’s not a BUY yet because I don’ t trust the market here and it could take another price dip before recovering. HOLD

STAG Industrial (STAG – 5.3%) – This is a cyclical REIT that isn’t a great place to be in a recession but is a very good place to be in a recovery. And it should benefit mightily from the economic restart. As well, Its warehouse properties are booming as online shopping is exploding and the need for warehouse storage properties is surging. Those facts, along with the strong yield and monthly payout, make STAG a good stock to hold going forward. HOLD

Verizon Communications (VZ – 4.5%) – This stock took a bit of a dip recently as investors gravitated toward riskier stocks as confidence accelerated during the bounce back. But it’s worth noting that VZ has still outperformed the S&P 500 since the market highs of February, down only 2.6%. The basic story never changes—and it’s good. Business is still strong during the pandemic as people rely on cell service more than ever. Looking forward, Verizon has a strong growth catalyst in 5G. BUY

Dividend Growth Tier

AbbVie (ABBV – 5.2%) – The pandemic driven recession isn’t even a speed bump for this biopharmaceutical giant. That’s a big deal. This company won’t have to recover. Meanwhile, its new drugs and pipeline continue to excel and they just closed the deal to buy Allergan (AGN), further diversifying the company away from Humira. While ABBV is actually making a run toward its 52-week high of over $97 per share, it is still a long way from the 2018 high of $140. Meanwhile, it pays a huge 5.2% yield. BUY

Altria (MO – 8.6%) – I could again talk about the disastrous JUUL acquisition and how the company will cope with the regulatory onslaught. But I’ve been doing that for months. Today I’ll shed a different light. It’s all about the dividend. That 8.6% yield is a beast. And it’s safe. This company has raised the payout every year for the last 50 years. And it’s still growing earnings and has a payout ratio around the historical average. I don’t know when investors will warm to this stock again. But it is selling near a five year low and provides one of the largest, high-quality yields I’ve seen in a decade. HOLD

Crown Castle International (CCI – yield 2.8%) – Let the good times roll. The fact is that the REIT sector as a whole has been lousy in this down market. Aside from Energy and Financials, REITs have been the worst performing market sector since the highs of February. But not CCI—the stock just made a new all time high. It is actually up about 5% since the market highs. The reason is that it is a unique REIT that invests in cell tower properties and is a direct beneficiary of the 5G rollout and revolution. The market temporarily forgot all about 5G while it grappled with the pandemic. But as the market and economy recover, investors are noticing again. 5G will be a big hero of the post virus market. HOLD

Innovative Industrial Properties (IIPR – yield 4.6%) – This marijuana farm REIT had a rollercoaster week. It took a bit of a drubbing last week when it announced a new stock offering of over a million shares. It’s a bummer because it dilutes shareholdings. But that’s what RIETs do to raise money, along with borrowing, because they pay out earnings in dividends. The good REITs get a temporary blip from the news and then bounce right back as investors realize they are capable of using the money to grow earnings enough to offset the share dilution. That’s what happened here. IIPR is actually up 6.6% in the past week as investors realized the company is growing earnings and the dividend at a fever clip. BUY

Qualcomm Inc. (QCOM – yield 3.1%) – 5G. That’s it. The company makes the only good chip for 5G smartphones. And those phones are coming big time. The revenue boost will be sufficient to offset any other shortcomings of the company and the stock. QCOM should thrive in the post coronavirus market. HOLD

Valero Energy Corp. (VLO yield 5.7%) – This refiner stock has been absolutely soaring. It’s up over 100% from the low in March. Valero was right in the crosshairs of the recession as demand for refined product crashed during the pandemic. But with the country opening up for business again, business promises to pick up. Spreads are already improving and the market sees demand for gasoline and other products booming six to nine months down the road. The company will likely report an ugly second quarter, but after that it’s off to the races. It’s also an extra bonus that crude oil, the number one cost, is likely to remain low priced even into the recovery. HOLD

Safe Income Tier

Alexandria Real Estate Equities (ARE – yield 2.7%) – Alexandria’s life science and research lab properties are not only a defensive and growing real estate niche, but the pandemic has made them more in vogue than ever. The REIT just raised the quarterly dividend by 3% and has plenty of cash on hand for future dividend. The defensive business is likely to be little affected by the recession and the dividend is safe. This is a great stock to hold through the crisis and beyond. HOLD

Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.6%) – This short term bond ETF has held up well through the crisis because it isn’t in the stock market, the bonds are short term, and they are investment grade rated. It still has a yield that’s better than you’ll get in most traditional safe haven investments. I will likely sell this ETF before it matures at the end of 2021, because you might get a slight dip in price when it’s liquidated. But I will hold for now in this still uncertain stock market. BUY

Invesco Preferred ETF (PGX – yield 5.5%) – This preferred stock ETF continues to recover from its selloff during the market panic. It has a high yield but it does have downside if the market takes another plunge. That said, it is only down about half as much as the stock market in this downturn. The high dividend and diversification from the market should also bolster demand for this fund in the post coronavirus market. HOLD

NextEra Energy (NEE – yield 2.4%) – This regulated utility and alternative energy giant is up about 14% in the past two weeks. There is no particular news of note. It’s simply that investors love this stock and seem to be discovering it again after a tumultuous few months. You get a defensive business with earnings growth as well as dividend growth. It thrives in a recession as earnings remain steady. And it will inherit the future with the alternative energy business. HOLD

Xcel Energy (XEL – yield 2.6%) – This smaller alternative energy utility stock just plain gets the job done. It has outperformed its utility peers as well as the overall market in the downturn since the February highs. It also outperformed both in the bull market. It doesn’t seem to matter if there is a pandemic or if the utility sector is performing poorly. This is a futuristic utility with strong growth that is build to thrive in any kind of market or economy. I could go on and on, but you get the idea. HOLD