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Dividend Investor
Safe Income and Dividend Growth

December 23, 2020

Despite a global pandemic and an economic crash, stocks had a great year. As of yesterday’s close all three indexes are higher for the year and very near all time highs. The S&P 500 is up over 14% while the tech-laden Nasdaq is up an astounding 42% YTD.


A Terrible Year for Parties, But a Great Year for Stocks
It’s Christmas time. And the market is finishing out one of the most amazing years ever.

Despite a global pandemic and an economic crash, stocks had a great year. As of yesterday’s close all three indexes are higher for the year and very near all time highs. The S&P 500 is up over 14% while the tech-laden Nasdaq is up an astounding 42% YTD.

Amidst the lockdowns, technology flourished as people relied on it more than ever. That soaring sector drove those indexes higher for most of the year. But following the vaccine announcements, previously neglected stocks in energy, finance, and other cyclical areas have caught fire and are helping drive the market higher from here.

The big story going into 2021 is the vaccine and its ability to end the pandemic and unshackle the economy for a full recovery. The market is already at least partially pricing in a booming economy. It better happen. I believe it will. Economic performance has consistently exceeded all expectations so far.

Things look good at this point. Sure, there could be a pullback or a correction after the S&P has soared 65% from the March lows and 14% since early November. But that should present a good buying opportunity ahead of a very promising year.

The portfolio is well positioned with great performing stocks that are continuing to kill it, as well as underperforming stocks that are turning things around fast. Things look good.

Have a Merry Christmas and a great holiday. Cheers.

High Yield Tier
B&G Foods (BGS – yield 6.3%) – The swagger is back at BGS. After peaking in the summer, the stock pulled back and went sideways for several months. But it’s having a great December and the stock is barreling quickly back to the 52-week high. This is a better company than it was before the pandemic, and it will stay better for a long time as a higher level of demand will persist for years to come. B&G should have a solid growth rate and the high dividend is safe. HOLD

Brookfield Infrastructure Partners (BIP – yield 3.9%) – This operator of infrastructure assets is in a solid uptrend. It also got a spike after the election as infrastructure is likely to be more front and center. The company seeks shareholder returns of 12% to 15% per year, in part supported by the targeted 5% to 9% annual distribution increases. It’s a solid stock and it is likely to remain popular with investors. BUY

Enterprise Product Partners (EPD – yield 8.8%) – This rejuvenated stock is taking a breather. After soaring 30% higher in about five weeks, EPD has pulled back 6% in the last week or so. That’s normal and healthy after a big spike higher in a short time. This is likely just the initial phase of a move higher for the stock as we move towards a full recovery. Remember, EPD still has another 50% to go just to get to the pre-pandemic high. BUY

STAG Industrial (STAG – 4.6%) – This monthly paying industrial REIT has been somewhat disappointing this year as it has underperformed the overall market with a 3.67% YTD return. It should be doing better because STAG is a beneficiary of the E-commerce trend, which has gotten a huge push forward during the pandemic. It also has other industrial properties that are in high demand when the economy is turning around. It’s probably because the REIT group has been lousy during this recovery. But fortunes should improve in 2021 for this cyclical and high dividend paying REIT. HOLD

Verizon Communications (VZ – 4.1%) – Wireless is a weird industry that requires massive investment in networks and has created an oligopoly. There is reliable income but little growth, making the companies more like old fashioned utilities. But the situation might get a lot better for VZ as 5G technology rolls out and creates many more opportunities to charge people for using its network, as well as upgrades in current subscriber plans. The stock could seriously benefit next year as 5G likely becomes a big story in the market as the pandemic finally goes away. HOLD

Dividend Growth Tier
AbbVie (ABBV – 5.0%) – This is a great biopharmaceutical company with one of the very best pipelines in the business. The stock is in a powerful uptrend and the stock still sells at a very low valuation and pays a serious dividend yield. But the personality of the uptrend has been big up and down swings on an upward slope. It recently had a big up move and made a new 52-week high. ABBV spiked 26% higher in about a month between late October and late November. It has been moving down from the recent high over the last week. It would be very consistent with the recent pattern for the stock to continue to move lower in the weeks ahead. It’s still well-worth holding over time, especially when you collect a 5% yield. But don’t be surprised if you see a temporary move lower. HOLD

Altria (MO – 8.1%) – The cigarette maker stock has made a nice move higher since late October. But it hasn’t moved up enough to change the story of the ugly trend. As of now, it’s still just at a high point in the sideways range that has prevailed for most of the year. Dividend stocks have been on the rise and that trend may continue. And MO is a great income stock with a high and safe dividend. It could break out of this range. I will be watching this one closely in the weeks ahead. BUY

Digital Realty Trust (DLR – yield 3.5%) – This data center REIT is a confounding stock. It has very little correlation to the overall market with a beta of just 0.10. It moves to its own tune. I’m just not sure how that tune goes. The stock rating was reduced to a HOLD because it broke below the moving averages and looked precarious on a technical basis. But it has moved sharply higher over the past couple of weeks. It’s a great fundamental story as technology continues to grow. And the stock is still in an uptrend. DLR is close to moving beyond the danger zone, at which point I will raise the rating back to a BUY. HOLD

Eli Lilly and Company (LLY - yield 2.0%) – This best-in-class pharmaceutical company has been basking in the glow of a plethora of good news. First, the election likely eliminated the possibility of an industry overhaul. Then there was great news on a major pipeline drug. Then Lilly raised guidance for this year and next and raised the dividend by 15%. It spiked 30% in six weeks and made a new all time high. I like the stock going forward as the health care sector offers both defense and growth with the tailwind of the aging population. BUY

Innovative Industrial Properties (IIPR – yield 2.5%) – WOW! This marijuana farm REIT was a good performer in the portfolio, then it spiked about 70% higher since late October. The growth in earnings and revenues has been sensational. And the stock long deserved a much higher price. The market seems to be recognizing that fact as the marijuana sector caught fire after the election legalized weed in several more states. The position has provided a return of about 180% in a little over a year. I’m not taking profits yet because the stock hasn’t shown any weakness yet and may have further to run. HOLD

Qualcomm Inc. (QCOM – yield 1.8%) – Since taking a hit a couple of weeks ago after Apple (AAPL) announced it is developing its own modems, the stock has been trending higher. It is still very much in a strong uptrend ahead of a year where the economy should recover strongly and 5G may take center stage and be the major market story. HOLD

Realty Income (O – 4.6%) – This is a conservative way to play the recovery. O has historically been one of the very best income stocks on the market, and it’s still cheap after the pandemic knocked it back. Despite pain in certain retail areas, the vast majority of Realty’s portfolio is doing fine, and the company still grew earnings over last year in the first nine months of the year. As the pandemic inevitably fades next year, this stock is likely to come back in vogue with yield hungry investors. It’s a good price with a great dividend. BUY

U.S. Bancorp (USB – 3.7%) – This top notch bank is a great stock to own heading into a likely full economic recovery in 2021. The full recovery that the market is already at least partially pricing in cannot occur without business getting much better for banks. The sector got good news this week when the Central Bank announced it will permit share buybacks for banks, which had been prohibited during the pandemic. USB is taking advantage and already announced a $3 billion buyback program for its stock shares. That should be another positive for the stock. BUY

Valero Energy Corp. (VLO yield 6.9%) – After a massive move higher in a short time, this refiner stock is taking a breather. That’s to be expected, and I think the upside move still has a long way to go ahead of a very promising 2021. At 55.69 per share the stock has a long way to go to just get back to the pre pandemic high of about 100. VLO could be volatile in the weeks ahead, but I expect this high leverage play on a full recovery to go places in the New Year. BUY

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.2%) – This short term bond fund is a safe port in a crazy market. While the market has been booming lately, there are still a lot of uncertainties out there. It’s nice to have something in the portfolio that you don’t have to worry about. Plus, considering the 10-year treasury still yields less than 1%, the yield isn’t bad for safe money by today’s standards. BUY

Invesco Preferred ETF (PGX – yield 5.1%) – This preferred stock ETF is much less volatile than the stock market and provides a higher yield than all but the most aggressive bonds. It also provides diversification as preferred stock performance is historically not correlated to the stock and bond markets. It’s a great place to generate a solid yield while rounding out your portfolio. HOLD

NextEra Energy (NEE – yield 1.9%) – This regulated and alternative energy utility juggernaut has returned 26% YTD while the utility sector is in negative territory for the year. It’s also significantly outperformed the S&P 500 this year, as it has for the past 3year, 5 year, 10 year and 15 year periods. I don’t see any reason why the stock wouldn’t continue to outperformance going forward. Alternative energy is only getting more profitable and more popular with investors. HOLD

Xcel Energy (XEL – yield 2.6%) – This smaller and more volatile alternative energy utility was upgraded to a BUY a couple of weeks ago in the December issue. The stock temporarily pulled back a bit as the market rampaged on a vaccine bender and forgot about the longer term trends. But it will certainly come back. The recent underperformance creates a good opportunity to get into this conservative alternative energy play. BUY

CDI Portfolio 122320