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Dividend Investor
Safe Income and Dividend Growth

December 30, 2020

The New Year looks promising for dividend stocks. With prices in many growth sectors at high levels ahead of a very promising economic year, the relative performance of dividend stocks in general should be much better this year than in 2020.


A Promising New Year
This week’s update closes out a remarkable year.

It’s been a year like no other. A global pandemic uprooted our lives and crashed the economy. No one saw it coming. Yet despite this massive disruption, the market had a good year. With two session left to go in 2020, the Dow Jones is up 6.9%, the S&P 500 is up 15.72% and the Nasdaq is up a whopping 43.68% for the year.

There are a couple of reasons for a strong market amidst a tortured economy. One is that technology is thriving is this environment as people rely on it more than ever during the lockdowns. The technology sector has driven the market higher. Also, the market tends to look ahead six months or so, and it sees a full recovery and booming economy by then.

But that the past. What matters is next year. What does the New Year have in store for stocks?

Of course, we can never truly know what the future holds. The past year is a testament to that truth. That said, I’m optimistic.

The economy has exceeded expectation every step of the way in this recovery. The vaccines should usher in a full recovery in 2021. Many economists are forecasting the strongest economic growth in decades for the year. We will likely have a booming economy, rock bottom interest rates, and a ton of stimulus to boot.

While the market has already at least partially priced in that optimism and prices are generally high, many areas of the market have not. Dividend stocks, as measured by the SPDR S&P Dividend ETF (SDY), are lower for the year, as real economy sectors that pay high dividends like energy and finance got hit hard during the lockdown-induced recession.

But those downtrodden stock and sectors are turning around fast after the emergence of the vaccines and the promise of a full recovery. Many dividend stocks are still cheap in an expensive market and offer a high income in a low interest rates world. Now, these stocks have momentum too.

The New Year looks promising for dividend stocks. With prices in many growth sectors at high levels ahead of a very promising economic year, the relative performance of dividend stocks in general should be much better this year than in 2020. The advisory intends to take full advantage and reap the bounty that 2021 offers.

Have a safe, healthy and prosperous New Year!

High Yield Tier
B&G Foods (BGS – yield 6.3%) – The packaged food company stock has been trending higher since the beginning of this month. We’ll see if it can power past the old high of 31.35 or if it finds resistance. This is a better company and will continue to be so as the increased at-home food demand will last beyond the pandemic. It has transformed from a slow growth company struggling to pay the high dividend to a solid growth company with a safe dividend. But I’m cautious at this point as to whether it can break through the old high in the near term. If it does, I’ll raise it to a BUY. HOLD

Brookfield Infrastructure Partners (BIP – yield 3.9%) – This operator of infrastructure assets just continues its relentless slow forge ever higher. I like it for the post-pandemic market for several reasons. It benefits from the huge E-commerce trend because it now has a sizable amount of cell tower properties. Brookfield has also been able to buy assets on the cheap during the recession. And the infrastructure subsector is becoming increasingly popular with investors and should get more attention when the pandemic finally fades away. BUY

Enterprise Product Partners (EPD – yield 9.0%) – This long-time dog has been revitalized by the vaccines and the promise of a full recovery in 2021. After surging 30% higher in a short time, EPD has taken a breather and is consolidating. That’s normal and healthy. The move higher isn’t done. It’s only just beginning. And this is a terrific entry point if you don’t own the stock already. It has a long way to go to just get back to the pre-pandemic highs. It has solid fundamentals, sells at a dirt cheap valuation, has a very safe high yield, and it is well positioned ahead of what is a very promising New Year for the energy sector. BUY

STAG Industrial (STAG – 4.6%) – This monthly paying industrial REIT has done okay but hasn’t been a great performer in the market recovery. A lot of that has to do with the fact that the REIT sector has been lousy. But I think STAG is very well positioned ahead of 2021. Its industrial properties are in short supply and high demand that will likely grow strongly going forward. It is also well positioned to benefit from the E-commerce boom with its warehouses. It’s only a matter of time until investors take a shine to this promising, high dividend paying, growth REIT. HOLD

Verizon Communications (VZ – 4.3%) – This wireless leader is in a fantastic position right now. On the one hand, it’s a stodgy, high dividend paying stock, like a utility. But it is a leader in 5G infrastructure. That leadership should pay off big in the future as more applications inevitably access its networks. The tangible growth catalyst from 5G will take time to unfold. But 5G will likely be a hot topic in the post-pandemic market and VZ will be seen as one of the best ways for conservative investors to play the trend. 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 perfectly positioned for great long-term performance. It’s the near term that’s tough to gauge. After languishing since the summer, ABBV soared back to a new 52-week high. The stock tends to go up and down on a longer term upward trend, and it seemed likely to pull back from this latest surge. But the stock is hanging tough and may well break through the recent trend. We’ll see how it performs in the next couple of weeks. HOLD

Altria (MO – 8.4%) – This is a great income stock that still has not broken out of a long term downtrend. While MO has had a nice pop recently, it still has a ways to go to buck the death march it has been on since 2017. It has seemingly halted the downward spiral and the next weeks and months will be critical in determining the worthiness of this position. In the meantime, that huge dividend is safe and the company is performing better than expected in the pandemic. BUY

Digital Realty Trust (DLR – yield 3.3%) – This data center REIT is a leader in a fast-growing business. It is a terrific stock to own for both income and growth. It also moves independently of the overall market with a microscopic beta of just 0.10. But the vaccine rally has not agreed with DLR, probably because it is seen as a pandemic beneficiary stock because of its technology exposure. It’s a silly near term gyration because this REIT will continue to grow strongly regardless of what the virus does. But the recent spike down put the stock in a technically precarious position and I reduced it to a HOLD to be cautious. DLR has been rallying and seems well on the way to reversing the downside threat. HOLD

Eli Lilly and Company (LLY - yield 2.0%) – This best-in-class pharmaceutical company stock is doing what a lot of similar stocks are doing. LLY was on fire after a plethora of good news in the past couple of months. But it lost steam as investors got distracted by the holiday season. It’s a hot stock that lost its hotness as investors focus on other things. That’s okay. LLY is well positioned ahead of 2021 with growing earnings, a great pipeline and membership in a sector that should continue to be popular with investors. BUY

Innovative Industrial Properties (IIPR – yield 2.7%) – The up and down marijuana sector is hot again after several more states legalized it in the November elections. The trend is helping propel IIPR ever higher. But it was a great company before the election and its stratospheric growth rate justified a higher price anyway. The sector has cooled off for the holidays but it may burn hot again in January as investors refocus on the market. The stock had a massive recent move and is begging for profit taking. But I’m not convinced it doesn’t have another spike higher left after the holidays. We’ll see. HOLD

Qualcomm Inc. (QCOM – yield 1.8%) – Sure, this 5G chipmaker stock has had a huge move higher since the summer. But I don’t think the party is over. Qualcomm is a primary beneficiary of the 5G rollout as it current has the only 5G smartphone chip. It’s going to ring that register big time as the royalties flood in over the next year plus. It’s also likely that 5G becomes a huge market driver in 2021 as the pandemic finally fades out of the news. The stock has been great and there should be more. 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 – 3.6%) – The timing is right for this superstar bank. It sells at a dirt cheap valuation ahead of a very promising year for the banking sector. The full recovery that the market is already at least partially pricing in cannot occur without business getting much better for banks. Not only should the full recovery benefit banks, but this bull market, which is still in its early stages, should be much better for the sector than the last recovery. BUY

Valero Energy Corp. (VLO yield 7.1%) – Several strong stock have had rallies interrupted by the holidays. VLO is the Crown Prince. It’s a high-leverage play on a full recovery with miles and miles to go just to get back to the pre-pandemic high. The vaccines ignited a 70% rally in VLO. I expect the upside to continue in the New Year as the full recovery gains traction. BUY

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.3%) – This short-term bond fund is a safe port. While the market is promising for the New Year, 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 5.0%) – This preferred stock ETF is much less volatile than the stock market and provides a big fat yield. 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%) – You have to love a stock that never goes out of style. Regardless of how the vaccine and virus unfold, investors will continue to love this combination regulated utility and alternative energy company. NEE has outperformed its peer group and the overall market in just about every measurable period over the last ten years. And I see absolutely no reason for the outperformance not to continue going forward. HOLD

Xcel Energy (XEL – yield 2.6%) – This smaller and more volatile alternative energy utility is more vulnerable to hiccups than the much more well known NEE. And it’s just coming off of one now. Alternative energy isn’t going out of style, and neither is a conservative way to play a hot trend. The recent underperformance creates a good opportunity to get into this conservative alternative energy play. BUY

CDI Portfolio 123020