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Dividend Investor
Safe Income and Dividend Growth

September 23, 2020

After pulling back over 8% from the high, the market is having trouble finding any traction. And the selling may not be over.


Awaiting a Vaccine

After pulling back over 8% from the high, the market is having trouble finding any traction. And the selling may not be over.

While the economy is likely to rebound strongly in the quarters ahead, investors see risks in the near term. One issue is the upcoming election, which is increasingly in everyone’s face as we move closer to November 3rd. Plus, the Supreme Court situation made the political rancor between the two parties even uglier, which makes a stimulus agreement less likely.

It’s worth noting that, historically, the market tends to perform well in election years. In fact, it typically performs better than normal. The market usually doesn’t really care who gets elected, at least right away. That said, it could be different this time because of the high chance of a contested result. Things could get ugly. And that risk is likely tempering the market.

But don’t forget Covid. This market is at least partially factoring in a likely vaccine in the near future. That optimism is well founded. There are more than 6 vaccines currently in late-stage testing and 30 in the trial phase. They can’t all be duds, right?

But a disappointment on the vaccine front will not be well-received by the market. There are still major questions regarding the timing of an FDA approval as well as the timing of wide-scale distribution. The market has already factored in a reasonable timeline. It better materialize. If it doesn’t, the market will likely fall. If it does, there is a good chance it will enter a new phase of the bull market.

While we may be talking and speculating about the election, the market just cares about money. It doesn’t really care about politics, but it cares a great deal about that vaccine. Keep an eye on that one.

High Yield Tier

B&G Foods (BGS – yield 6.8%) – The stock of this packaged food company has been on a ride recently. After soaring about 70% for the year, BGS pulled back over 15% from the high during the recent market selloff. It is rebounding and has moved up over 5% from the recent low. Operationally, things are terrific. Volume sales were up 34.5% in the second quarter. And the eat-at-home trend is widely expected to continue beyond the pandemic. The stock is also still relatively cheap despite the big YTD move. Currently under 30 per share, this was a 50 stock a few years ago. And things are vastly improved since then. An under 30 price makes BGS a buying opportunity. BUY

Brookfield Infrastructure Partners (BIP – yield 4.2%) – The relative performance of this infrastructure partnership has vastly improved of late. The stock was quick to rebound right after the March lows but then underperformed the market for several months. But during the recent 8% plus downturn for the S$P 500, BIP is up over 10%. Investors shunned the stock when they were feeling greedy, and now they love it when they’re scared. This is a rock-solid, defensive, high-dividend stock. Such securities go in and out of favor with the market. Now, they are back in favor and BIP is benefitting. BUY

Enterprise Product Partners (EPD – yield 11.1%) – Even down markets don’t particularly like this cheap value stock. I said it before and I’ll say it again. This midstream energy company has a very resilient business that is rebounding strongly, much more so than the energy sector as a whole. That massive distribution is well-supported by cash flow and earnings and is safe. This should be at the very least a great source of high income until investors come around to the value. HOLD

STAG Industrial (STAG – 4.5%) – Yeah, this monthly-paying industrial REIT has not been great during the recent selloff, only faring slightly better than the S&P 500. But it tends to be more cyclical than most REITs. While STAG does have more downside volatility in the short term than most defensive plays, the longer term performance is stellar. And future prospects look great as demand for E-commerce warehouses and industrial space will likely continue to be very strong in the quarters and years ahead. HOLD

Verizon Communications (VZ – 4.2%) – The stock of this wireless giant is a turtle when the market is booming, but it’s sure nice to have when the market heads south. VZ barely budged during the recent 8% down move for the S&P 500. Earnings are stable during the pandemic and one of the worst economic quarters ever. There is also a great opportunity of a high level of growth to go along with the stability as the 5G rollout will create more opportunities in the future. BUY

Dividend Growth Tier

AbbVie (ABBV – 5.3%) – This biopharmaceutical stock has been floundering. It was fantastic out of the gate after the March bottom but it peaked in mid July and has been slowly trending lower since. On a technical basis it is near crucial support levels. There doesn’t seem to be any fundamental justification for the reversal of relative performance. The health care sector has been underperforming, probably because of uncertainty regarding the election and future policies. We could be in for a few more months of stagnant price performance. I’ll keep a close eye on this one. BUY

Altria (MO – 8.9%) – The cigarette stock had been on a solid upward trajectory since early July, but has sold off sharply with market selloff. The underperformance is surprising because the stock was cheap already. But stocks that the market didn’t like before the selloff, it still didn’t like during the selloff. It should creep back up from here. The main thing is that the dividend is safe, making MO at least a strong income play. BUY

Crown Castle International (CCI – yield 3.0%) – This cell tower REIT has outperformed the market both YTD and over the past year. It outperforms it by a lot over longer time frames. But it has been moving sideways since June. The stock got ahead of the market and then the market caught up. But I like CCI during these uncertain times because earnings generated from cellular infrastructure are so bankable. HOLD

Digital Realty Trust (DLR – yield 3.1%) – This data center REIT has performed on par with the overall market in the latest downturn. I find that somewhat surprising because DLR tends to move to its own tune with a beta of just 0.21. It is likely because of the more pronounced selloff in the technology sector. The sector has risen so high that it was bound to have a consolidation at some point. However, the basis for the stock is still strong. 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. BUY

Eli Lilly and Company (LLY - yield 2.0%) – The drug company stock has held up very well in the market downturn, and is actually higher over the past month. This is one of the best drug companies on the market with a fantastic pipeline and a proven ability to execute. The performance is killing that of the S&P 500 both YTD and over the past year. Although it has pulled back from the recent high, it is still in a powerful uptrend. At some point the coast will be clear and this stock should start running higher again. BUY

Innovative Industrial Properties (IIPR – yield 3.8%) – When you’re hot you’re hot. Despite the fact that this marijuana farm REIT stock had been on an unholy tear before the market started to sell off in the beginning of the month, it is only down a couple of percent for the month and has been much better than the S&P. It just stopped forging ever higher, for now. We’ll see how IIPR behaves going forward, but it may well resume marching higher if and when the overall market gives the all-clear. HOLD

Qualcomm Inc. (QCOM – yield 2.3%) – Sure, this chip maker stock has been down just a little more than the market, but that’s still solid performance under the circumstances. Historically the stock has a beta of 1.39 which makes it more volatile than the market. The semiconductor sector is very cyclical. And this selloff has been unkind to technology stocks. Under the circumstances, it’s held up very well. HOLD

Valero Energy Corp. (VLO yield 8.3%) – VLO is a similar story to EPD. Here’s why I’m holding on. The market is pricing is a robust recovery in the quarters ahead. If that recovery materializes (which it appears on track to be doing), Valero will surely benefit as gasoline and diesel power the economic resurgence. In the meantime, the company is highly committed to the dividend and should certainly be able to maintain it until business improves. VLO could be a huge beneficiary of the next leg of the bull market that probably resumes when a vaccine is on the way. HOLD

Safe Income Tier

Alexandria Real Estate Equities (ARE – yield 2.7%) – This life science and research lab niche REIT had been performing very well, but it peaked at the end of July and has been trending downward since. The performance during the market downturn has been unimpressive, as it has fared about the same of the market. Part of the reason is that this is a defensive stock and had been significantly outperforming the market during the recovery, and the market had to catch up. But the stock is at key technical support level of I will be watching it closely from here. HOLD

Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.6%) – This short term bond ETF is a beautiful thing in markets like this. It’s nice to have something in the portfolio that you don’t have to worry about. 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. And it’s been great during the latest pullback. 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%) – Sure, this regulated and alternative energy utility is down from the high of 300, but it had spiked higher after announcing the 4 for 1 stock split and really only gave up that spike. This is one of the best companies to own and I will seriously consider raising it to a BUY if the market has more trouble and the stock dips lower from here. HOLD

Xcel Energy (XEL – yield 2.6%) – The alternative energy utility pulled back about on par with the market. The reason is that it had gotten a little pricey. But it deserves a higher multiple because it’s a great way to play the alternative energy trend. 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. HOLD