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Dividend Investor
Safe Income and Dividend Growth

November 4, 2020

We still don’t know who the president is... But the market loves it. The Dow is up over 700 points and the S&P 500 is up over 3% on the day.


Neither Side Wins, and the Market Loves It
Election Day has come and gone. The market can finally move into an environment of even more confusion.

We still don’t know who the president is. And we might not know for several days or even weeks. The only thing we know for sure about the race is that whoever ultimately loses will be bitter and feel cheated. The next president will most likely be considered illegitimate by the other side.

But the market loves it. The Dow is up over 700 points and the S&P 500 is up over 3% on the day. The indexes would probably be up a lot more if it wasn’t for the risk of this thing dragging on and getting ugly. But the market certainly likes something about the results. What is it?

The market sees divided government. It seems clear that the Democrats will keep control of the House of Representatives and the Republicans will maintain a majority in the Senate. That means the risk of draconian legislation is off the table. Neither president or party will be able to alter the playing field.

You can see this playing out in the health care sector. Those normally desirable stocks had been held back by the risk of dramatic changes in the industry from a Democratic president and Congress. That risk and impediment is now off the table. And the sector is reveling.

The iShares Nasdaq Biotechnology ETF (IBB) is up 7% today. ABBV is up almost 10% and LLY is up 15%. Those are huge one-day moves for stocks in this sector. Sure, politicians are breaking out the brass knuckles for an impending fight, but the health care sector is basking in the sun of an already glorious outcome.

The market doesn’t care about politics. It only cares about money.

We may not be out of the woods yet though. We’ll have to see how ugly this gets. But the market likes what it sees so far. In the not-too-distant future, the focus should move to the virus and a vaccine. Good news on that front should enable the market to really take off. Bad news will probably lead to more of the same.

There is a likely robust recovery and bull market ahead regardless of who wins. Don’t forget that.

High Yield Tier

B&G Foods (BGS – yield 6.8%) – The packaged food company stock topped out at the end of August over 30 per share and has been sort of languishing ever since, not unlike the overall market. But the stock is not only a good defensive play for the rest of the pandemic but it should be good on the other side as well. It’s still cheap, it pays a massive yield and it is now a company with solid long-term growth prospects. Earnings later this week should be stellar and that may give the stock a boost. BUY

Brookfield Infrastructure Partners (BIP – yield 4.4%) – Like BGS, I like BIP for the rest of the pandemic and beyond. The defensive monopolistic and crucial assets continue to generate reliable earnings in any economy, while the opportunistic purchasing of assets on the cheap during the recession should position BIP very well for the post-pandemic market. The stock recently pulled back from the recent high of 48, but it is still in an uptrend with earnings coming next week. BUY

Enterprise Product Partners (EPD – yield 10.7%) –The midstream energy company is rallying today as the election results are seen as mostly positive. The possibility of more draconian energy industry changes are now off the table. But this stock is levered to the recovery. A robust and growing 2021 economy is what will really get this stock moving. Until the market sees real and tangible evidence on the ground of such, the stock will probably not move significantly. But that scenario is likely in the coming quarters. HOLD

STAG Industrial (STAG – yield 4.6%) – After a rapid rise from the March bottom, STAG has leveled off over the past three months. Industrial properties are a cyclical and growth business with a favorable supply/demand dynamic. It is defensive enough to hold its own during the recession but is positioned to benefit when the economy booms on the other side of this pandemic. It’s solid for now and good for later. STAG also announces third-quarter earnings later this week. HOLD

Verizon Communications (VZ – yield 4.4%) – Although performance has been anemic of late, this is still a great defensive income stock to own in times of market turbulence. It should at the very least perform like a stodgy utility that pays a high dividend. But there is also a growth catalyst in 5G as the new technology rolls out. It’s also worth noting that 5G will likely be a big story in the market after the pandemic fades. You have a solid, defensive income stock with a good possibility of a growth kicker not too far down the road. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 5.9%) – The biopharmaceutical company killed it on earnings. It beat expectations on revenue and earnings, with 21.5% year-over-year growth, raised the dividend by 10.2% and raised full-year guidance. In addition, the drug companies are flying today as it appears Republicans will hold the Senate, making significant reform in the industry unlikely. Wall Street believes the health care sector dodged a bullet and the whole sector is shooting higher like a rocket.

ABBV is up 8.75% on the day at over 95 per share and the stock has soared over 18% since last Thursday. The long dormant stock has suddenly gotten a move on in a big way. AbbVie was always a fantastic health care company selling at an incredible value with a sky-high dividend yield that will inherit the future. Now it has momentum too. HOLD

Altria (MO – yield 8.9%) – The cigarette maker also beat on earnings, but … Altria announced another $2.6 billion write-off in its investment in E-cigarette company JUUL. The late 2018 investment of $12.8 billion has been written down to $1.6 billion. It’s a disaster that was already built into the price. Without that the quarter was great. Revenues were up 4.9% and cigarette volumes increased on a yearly basis. The dividend is safe. Operational performance is strong and better than expected. And the JUUL disaster was already baked into the cake. The stock is well positioned going forward. BUY

Crown Castle International (CCI – yield 3.3%) – The REIT issued guidance for 2021 at 10% earnings growth and raised the dividend by 11%. Earnings are solid and future growth seems assured with demand for cellular technology buoyed by the 5G rollout. The company is growing earnings in a severe recession and the dividend hike is encouraging. While the stock performance of late has been uninspired, the company is well positioned for the volatile market and beyond. HOLD

Digital Realty Trust (DLR – yield 3.1%) – This data center REIT announced earnings last week that disappointed investors. The stock fell as earnings missed the target. However, analysts maintained their price projections for the stock as they built in a very small effect going forward, which is likely why DLR appears to be rallying back. This is still a rock solid REIT with a tremendous niche that will continue to prosper going forward. BUY

Eli Lilly and Company (LLY – yield 2.3%) – Lilly is riding the post-election health care euphoria wave big time. LLY is already up over 10% on the day. The stock got knocked back when its most promising Covid drug failed, and now it’s on fire. But all these recent events are mostly nonsense. The real reason that LLY is a great stock is because the company has a fantastic pipeline and a proven ability to execute amidst the powerful tailwind of an aging population. I think the stock should get a move on now that the sector is being reawakened. BUY

Innovative Industrial Properties (IIPR – yield 3.8%) – This rapid growth marijuana farm REIT is pulling back into the fast lane. IIPR is up nearly 7% on the day as the relief rally is carrying this market favorite with it. The stock appears on track to make a new all-time high of over 137 (currently 131). Nothing has changed for the high growth company except the market environment. But as long as that environment isn’t prohibitive this stock should soar. HOLD

Qualcomm Inc. (QCOM – yield 2.1%) – This chip maker stock has been remarkably resilient in the turbulent market. It should continue to perform well because 5G phones will continue to roll out regardless of who wins the election and what course the virus takes. It should also benefit mightily on the other side of the pandemic as 5G becomes a bigger market driver. Qualcomm reports earnings after the bell today. You never know what to expect but there isn’t any reason why results shouldn’t be positive as 5G royalties are starting to pour in. But we’ll see. HOLD

Valero Energy Corp. (VLO – yield 9.8%) – The beleaguered refiner is really a play on Covid and the economic recovery. The recent increase in cases and restrictions has been bad news for the stock. But it has strong technical support around the current level and could be a huge beneficiary as the pandemic fades and the economy recovers. Gasoline and diesel aren’t going out of style anytime soon and the stock will inevitably recover as the world moves beyond the 2020 pandemic nightmare. In the meantime, you get paid a near double-digit yield to wait it out. HOLD

Safe Income Tier

Alexandria Real Estate Equities (ARE – yield 2.7%) – This life science and research lab niche REIT is rallying along with the rest of the market today. It’s a conservative dividend stock in a market that hasn’t been particularly kind to such stocks. But it has reliable earnings and a great niche. Interest rates are near historic lows and the market is turbulent. There will continue to be an appetite among investors for a stock like this. It won’t set the world on fire but ARE should come as advertised going forward. It should provide you with a decent total return without risking your shirt. HOLD

Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.4%) – 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 5.1%) –This preferred stock ETF is rock solid in all but the most tumultuous market selloffs. PGX has been consistently trending back toward the high and the uncertain market will probably edge it over the top. 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 1.8%) – This combination regulated utility and alternative energy juggernaut is a superstar. The market recovery has not been kind to the utility sector. But NEE is up over 25% YTD. In fact, this utility stock has provided an average annual return of 20% over the last 10 years and 26% over the last five. You can own a conservative utility and still generate the outsized returns from a promising alternative energy company. NEE is the best of both worlds and investors will continue to heap piles of love on this stock. Go baby go. HOLD

Xcel Energy (XEL – yield 2.4%) – The alternative energy utility reported earnings last week that beat estimates. What virus? What recession? The utility grew earnings 12.87% over last year’s quarter. It also issued guidance for solid earnings for this year and next. The stock has rallied since the announcement and is now within bad breath distance of a new all-time high. The stock is pricey but continues to be in high demand as investors love the higher growth from alternative energy. HOLD

CDI Portfolio 110420