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Dividend Investor
Safe Income and Dividend Growth

September 16, 2020

The raging bull market took a breather. The S&P 500 actually pulled back 7% from the high at the peak of the recent Labor Day selloff. But that seems to be over. The market has since regained some traction and appears to be resuming an uptrend.


Is That All You Got?

The raging bull market took a breather. The S&P 500 actually pulled back 7% from the high at the peak of the recent Labor Day selloff. But that seems to be over. The market has since regained some traction and appears to be resuming an uptrend.

We saw a similar pullback in early June. That selloff seemed like a long overdue end to the relentless march ever higher. But it wasn’t. It turned out to be a necessary consolidation on the market’s path ever higher. But this time it could be different.

In truth, the 7% selloff was a lame bear answer to a market that soared 60% higher since March. It was a rather unconvincing answer to the euphoria gripping the market despite the lingering virus and hobbled economy. This still looks like a market that wants to go higher.

But the uptrend could change its stripes. The fully priced market is looking upon tremendous uncertainty surrounding the upcoming election. And it’s not about who wins, but rather the possibility of a contested result and a protracted vicious battle afterwards. As well, the dominance of big tech could be ending.

The high priced FAANG stocks that had driven the market ever high may finally be out of gas. Those stocks have certainly pulled back. But we’ll see if it is just a blip or a new trend. It would be healthy if market leadership turns toward some of the lower priced and value oriented dividend stocks. That would certainly make sense as the high priced market stares into a very uncertain future in the months ahead.

In the meantime, the portfolio performance, with the exception of the two energy stocks, is stellar. There is some good news in several positions, which I will explain in the exquisitely crafted write-ups below.

High Yield Tier

B&G Foods (BGS – yield 7.2%) – The stock of this packaged food company has had a rough two weeks, down 15%. There is no fundamental reason for the decline. It was likely because the stock has run up about 75% YTD and was due for a pullback. But it’s been up for good reasons; the company is killing it during the pandemic and will likely perform at a higher level than before for many years to come. Yet the stock is still valued lower than its peers. Even though the stock is up over 50% for the year, it is down over the last two years. This was a 50 dollar stock in 2016 (currently 26.44) with much lower earnings and projected growth. The pullback is an opportunity to get in. BUY

Brookfield Infrastructure Partners (BIP – yield 4.2%) – It looks like the time for this infrastructure partnership has arrived. After rebounding quickly from the March lows, it kind of just went sideways for a long time while the market took off. Now it’s starting to pull away. It’s up over 20% in the last three months, nearly double the return of the market, and it’s up about 10% over the last month while the overall market has languished. As the recovery matures and the tech sector cools off, more investors gravitate towards a solid dividend payer like this. BUY

Enterprise Product Partners (EPD – yield 10.4%) – The pandemic put the kibosh on ever-expanding U.S. oil and gas production. Pipelines were being built to accommodate the anticipated demand, but it may be a few years before oil and gas production expands beyond last year’s levels. As a result, growth opportunities in the midstream space have dried up. But Enterprise still has several new projects coming on line this year and next, despite having cut targeted expansion plans. Because of the lack of anticipated growth, the market hates the sector. And EPD is getting thrown out with the bathwater. But that monster yield is safe and EPD should at the very least be a great income play in the quarters ahead. HOLD

STAG Industrial (STAG – 4.5%) – This industrial REIT has grown EPS over 40% per year in each of the last three years. While that level will likely moderate, STAG has a lot going for it. It has 43% of its portfolio in E-commerce related properties, where demand is surging. As well, industrial properties have growing demand and it’s a very fragmented market with plenty of opportunities for acquisitions going forward. It’s been a longer term market outperformer and it’s still in an uptrend. Plus, that 4.5% yield comes with a monthly payout. HOLD

Verizon Communications (VZ – 4.2%) – Verizon announced a $7 billion purchase of the leading prepaid and value mobile provider Tracfone from Mexican telecom giant American Movil. The announcement was on Monday and VZ closed higher in the news. Verizon expects it to be accretive to earnings in the first year. The company has huge margins that will enhance growth at Verizon and it’s an easy fit. As well, the prepaid/value subscriptions excel in a recessionary environment and carry huge potential for upsells down the road. The growth enhancement is key for Verizon. BUY

Dividend Growth Tier

AbbVie (ABBV – 5.2%) – This biopharmaceutical stock has been on a sideways track for a while. It topped out at a 52-week high of just over 100 in mid July and is now in the low 90s. The feverish rally in ABBV since the March lows needed a breather, and the health care sector has been underperforming as well. This is a good entry point if you don’t own the stock already. New drugs along with the Allergan merger are overcoming the concern about the loss of patent exclusivity on Humira in 2023. Meanwhile the stock is still dirt cheap at 10 times forward earnings and pays a remarkably fat 5.2% yield for a stock of this caliber. BUY

Altria (MO – 8.0%) – Although the market still hates the stock of this cigarette company, it has been in a very slow uptrend since May, and holding steady around 43 in recent weeks. Not only is smoking unpopular but Altria’s attempt to get into E-cigarettes is going badly. Remember though, this stock had amazing performance for decades amidst contempt and non believers. This is nothing new. The company generates easily enough free cash flow to pay that huge dividend. Plus, there are some potential growth catalysts out there. It should at the very least perform as a good high income stock. BUY

Crown Castle International (CCI – yield 3.0%) – This cell tower REIT has really been sucking wind over the past three months. It was fast out of the gate in the recovery and made new highs long before the overall market. But recent performance has caused some to question if CCI has lost its mojo. But such behavior has not been abnormal for the stock, which is still in a longer term uptrend. It has a history of soaring, then going flat for a while, and then resuming another move higher. It’s still a solid holding in a huge growth business. HOLD

Digital Realty Trust (DLR – yield 3.1%) – Although this new kid on the block data center REIT has had a double-digit pullback from the high in late July, it is still in a powerful uptrend. Technology is more prominent and crucial than ever and the infrastructure to support it is not going out of style. As well, new technologies and wider usage with the adaption of the 5G technology should give this stock a bright future. I am expecting a bounce higher in the weeks ahead, unless the market decides to head south again. BUY

Eli Lilly and Company (LLY - yield 2.0%) – The drug company announced positive trial results for a coronavirus treatment with Incyte that uses an existing arthritis drug in combination with Gilead’s remdesivir, a current popular drug to treat the virus. The drug shortened recovery and relieved symptoms. Of course, no one knows what will happen. But Lilly has so many strong new drugs and more in the pipeline that it won’t matter that much. The stock has pulled back from the high and is again in a good buy range. Lilly has vastly outperformed the market YTD and over the past year but still sells at a price/earnings ratio below that of the overall market. BUY

Innovative Industrial Properties (IIPR – yield 3.5%) – The marijuana farm REIT initially pulled back along with the market at the beginning of the month but has since come roaring back with a vengeance. It closed yesterday right about at the 52-week closing high. The stock looks like it wants to go higher and could run past the all time high of 130 set in the summer of last year. The REIT has the earnings and revenue growth to justify a much higher price. But we’ll have to see what the market does from here. IIPR can be volatile with the market in the near term. HOLD

Qualcomm Inc. (QCOM – yield 2.2%) – The chipmaker stock sold off more than the market in the initial market’s selloff two weeks ago, but it’s bounced back stronger than the market since so is now back where it was a month ago. That performance is a good indication that the strong gains made by this stock in recent months are solid. The huge boost from the Huawei settlement combined with the upcoming boost in revenues from 5G smart phone sales should continue to make QCOM a winner in the months ahead. HOLD

Valero Energy Corp. (VLO yield 8.2%) – VLO is a high leverage play on a strong economic recovery, which I believe will unfold beyond expectations in the months and quarters ahead. It may be one of the darkest hours for this stock, but I believe it is approaching the launch pad. Even if VLO regains half of what it lost so far in this calendar year, it would be a sizable gain from here. HOLD

Safe Income Tier

Alexandria Real Estate Equities (ARE – yield 2.5%) – This life science and research lab niche REIT hasn’t sold off as much as the S&P 500 over the past couple of weeks, but it’s still down more than 3%. It marched relentlessly higher after the March lows but ran out of gas in August. That’s okay. It’s still in a long-term uptrend that I expect to resume as the uncertainty regarding the election creeps into investors’ minds and they move toward safety. 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 risk and uncertainty abound. BUY

Invesco Preferred ETF (PGX – yield 5.5%) –This preferred stock ETF is rock solid in all but the most tumultuous market selloffs. It is less volatile than the market in general and provides a high yield and excellent diversification from both the stock and bond markets. HOLD

NextEra Energy (NEE – yield 2.0%) – This regulated and alternative energy utility is riding high. It continues to blow away the performance of its peers and the market and is now up close to 30% YTD. It also made like Tesla (TSLA) and Apple (AAPL) and announced a stock split. The stock will split 4 for 1 for shareholders of record on October 19th. Based on yesterday’s close that would mean the price would be reduced to 73.92 (295.70 divided by 4) but if you own 100 shares currently, you will own 400 shares after that date. The idea is to make the share price more attractive to a greater pool of investors. The high-flying utility also raised earnings guidance through 2023. HOLD

Xcel Energy (XEL – yield 2.5%) – Although it’s not selling quite at the all time high, and it isn’t splitting 4 for 1, this alternative energy utility stock looks pretty good too. The dynamic is fantastic. The cost of producing alternative energy is getting cheaper while demand continues to grow. Clean energy also captures the imagination of investors as it is the energy source of the future. XEL is still in a strong uptrend. HOLD

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