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Dividend Investor
Safe Income and Dividend Growth

June 24, 2020

While there are growing signs of risk, the market is, as always, difficult to predict in the near term. If it does selloff, that’s okay. Stocks in this portfolio are well positioned to endure further hardship and thrive beyond this crisis. Another down leg in the market will represent an opportunity to better position ourselves ahead of the ultimate recovery.


The Bull Shows Signs of Cracking

The market is having a big down day today with the major indexes off about 3% so far. It’s the second very ugly day this month and perhaps a sign that the market may have gotten ahead of itself in the near term.The market is being spooked by news of an increase in the spread of the virus. I believe it is unlikely that the rise in cases will derail the economic restart, and news like this was all but inevitable. But this virus stuff is going to linger for a while. And so will the headline risk to the market.

There’s been serious headline risk for many months. And the market just forged higher anyway. The fact that bad news is starting to hurt the market indicates it may have risen near the top of the near-term range.

I believe the economy will come roaring back. The market got that right. And I’m bullish over the next year or two. But the S&P 500 had rallied to within 5% of the all-time high with the pace of the virus and recovery still very much in question. Stock prices crossed into the high-risk zone where ugly headlines or anything that puts the pace of the recovery into question can make investors run for the hills.

While there are growing signs of risk, the market is, as always, difficult to predict in the near term. If it does selloff, that’s okay. Stocks in this portfolio are well positioned to endure further hardship and thrive beyond this crisis. Another down leg in the market will represent an opportunity to better position ourselves ahead of the ultimate recovery.

Don’t fear further downside. Embrace it and exploit it if it happens.

High Yield Tier

Brookfield Infrastructure Partners (BIP – yield 4.5%) – The stock of this infrastructure partnership is still in an uptrend. Investors love the consistent earnings during a recession. But in the post-pandemic market BIP should be a star as infrastructure becomes an increasingly popular subsector. I like the stock going forward and feel particularly good about holding it in the event that the market has another significant downturn. BUY

Enterprise Product Partners (EPD – yield 9.4%) – I get it. Investors hate the energy sector right now. But there is no way the stock of EPD deserves to be this depressed. First of all, business isn’t off that much. As well, things will pick back up very fast as the recovery gains traction. In the meantime, that stratospherically obscene yield is actually quite safe. I’m not sure when investors will wake up to the great value but you get a huge income to wait around. HOLD

STAG Industrial (STAG – yield 5.0%) – The stock of this industrial REIT tends to mimic the performance of the overall market. That’s been a good thing lately. But I’m wary of the market at current levels. That’s why half of this position was sold a couple of weeks ago. Longer term, STAG has a solid business plan with in-demand properties as online shopping continues to grow and companies increasingly demand warehouse space. In the meantime, this stock isn’t far from the post-bear market high. We’ll see what the market does from here. HOLD

Verizon Communications (VZ – yield 4.5%) – The stock of this wireless behemoth has not been behaving particularly well since about mid-April. It seriously outperformed the market during the selloff but has lagged since the market recovery gained traction. When the going gets good it seems that investors shun VZ for sexier plays. Businesswise, everything looks good for Verizon. People use cell phones and the internet more than ever during the lockdown and a strong growth catalyst in 5G lurks around the corner. In this frothy market, I rather like the fact that this stock tends to shine in down markets. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 4.9%) – This biopharmaceutical giant isn’t far from the 52-week high. That said, the price is still a long way from the 2018 high and still represents a good value. Investors are increasingly coming around to the view that AbbVie’s new drugs and pipeline can offset the increased Humira competition. At the same time, the sector is in the sweet spot of this market. Healthcare is naturally defensive and biotech is sexy. The biotech index just hit a new all-time high. This is still one of my very favorite stocks in this market and I’m comfortable holding it through any type of market. BUY

Altria (MO – yield 8.4%) – Let’s see: Altria has a dirt-cheap price, a stratospheric and safe dividend, and limited downside if the market turns south. I like the situation. Sure, there are continuing problems with E-cigarettes and the JUUL acquisition. But that is already built into the price. Meanwhile, the company continues to grow earnings, and at a faster clip during the recession. The market still doesn’t like this stock and it may not have too much upside in the near term. But it’s a great way to get an income and still keep an eye out for the potential downside. BUY

Crown Castle International (CCI – yield 2.9%) – All is well with this cell tower REIT, perhaps too well. It is one of those businesses that has thrived right through the pandemic and has a strong growth catalyst from 5G that should enable the stock to continue to thrive in the post-pandemic market. CCI is up over 14% so far this year. But valuations got a little stretched and the stock has come off the highs. Half of the position was sold a couple of weeks ago because of valuation. From here, the stock should hold its own but not necessarily continue to run higher. HOLD

Innovative Industrial Properties (IIPR – yield 4.6%) – The market will go up and down. The marijuana sector will move in and out of vogue. But soaring earnings never go out of style. And this REIT continues to grow earnings at a fever clip, pandemic or no pandemic. The long-term trajectory of the stock is unmistakably higher. But IIPR tends to be volatile with the overall market in the near term. It could take another hit if stocks head south. But the market may not have a significant downturn. And, even if it does, this stock will come roaring back as the market recovers. It’s going higher longer term and you will be well rewarded for enduring volatility along the way. HOLD

Qualcomm Inc. (QCOM – yield 2.9%) – Investors are a temperamental lot. One day the pandemic is going away, the next day it’s growing. The market can turn from euphoric to fearful on a dime, and vice versa. Who knows what it will do in the weeks ahead. But 5G is coming. You can take that to the bank. And QCOM will be a major beneficiary of that inevitability. The stock could get knocked around in the near term, but it will own the post-pandemic world. Don’t forget that. Hang on and ride this bronco to big profits in the future. HOLD

Valero Energy Corp. (VLO – yield 6.3%) – The thing about the stock of this refiner is that it’s uber-cyclical. It tends to exaggerate the market moves in the near term. It also tends to move ahead of the market trends. VLO soared higher from the market bottom until early June. Now it seems to be pulling back, probably ahead of the overall market. But the recovery is coming and Valero will benefit mightily. HOLD

Safe Income Tier

Alexandria Real Estate Equities (ARE – yield 2.5%) – 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 increases. 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 a turbulent market 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. BSCL is a safe port in a stormy market and owning it provides much needed comfort as the world goes crazy. BUY

Invesco Preferred ETF (PGX – yield 5.4%) – This preferred stock ETF holds up like a rock in all but the most tumultuous market selloffs. And even then it goes down much less than the market. At the same time, it provides an awesome yield from an asset class that is diversified from the stock and bond markets. HOLD

NextEra Energy (NEE – yield 2.3%) – This regulated utility and alternative energy giant is one of the best stocks for conservative income investors, or anyone, to own. The only thing holding me back is valuation. There could be further weakness in the market in the weeks ahead and I will look to raise NEE to a BUY rating if it goes below 230 per share (currently 240). HOLD

Xcel Energy (XEL – yield 2.7%) – There are certain megatrends out there, like the aging of the population, the technological revolution and the growth of the global middle class. The trend toward alternative energy is another one. This smaller alternative energy utility is a fantastic way for conservative income investors to play the trend. The stock performance in the portfolio has been fantastic. And I expect more of the same going forward. I’ll raise this to a BUY on any weakness. HOLD