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Dividend Investor
Safe Income and Dividend Growth

January 20, 2021

The market is off to a good start this year and anticipating wonderful things for 2021.


The Market Bender Continues
These are good times indeed.

It’s another day and another all-time high for the S&P 500. The index is up over 70% since March and over 17% since the beginning of November. The market is off to a good start this year and anticipating wonderful things for 2021.

Why shouldn’t the market be going up? A full recovery is likely to come during the year with the highest anticipated economic growth in decades. Interest rates are near historic lows (with no place else for money to go but stocks). And the country will soon be awash in new stimulus.

The market cares where we are going. And it sees a booming economy with low interest rates and a friendly Fed just ahead. What’s not to like?

The market doesn’t care about the toxic political environment either. That just means that practically nothing will get done. Good. As the market sees it, the only thing the two parties will be able to agree on is spending money. The market loves a government that does nothing but flood the market with liquidity, at least for now.

Of course, it remains to be seen if the full recovery will come to fruition or if the new Administration will be as market-friendly as it currently anticipates. But the market usually gets it right.

While things are good, they feel a little too good. Benders usually don’t end well. While I believe in the full recovery and I’m bullish for 2021, a market that has soared this high this fast seems a little Russian roulette-ish. Markets never go straight up. Pullbacks and corrections are common in even the strongest of bull markets.

For that reason, I am taking some money off the table this week. Don’t get me wrong. I’m not sensing some kind of imminent disaster. It just seems prudent to take some money off the table while the market is riding a drunken bender ever higher.

High Yield Tier
B&G Foods (BGS – yield 6.7%) – This packaged food company stock offers value, a high and safe dividend and solid earnings growth. Those things should win out longer term. In the near term, I’m not quite sure what this is. The market can’t seem to decide if it’s a pandemic stock that’s had its day or a strong dividend stock. While the 30%-plus growth during lockdowns will shrink, a higher than pre-pandemic level of growth will persist. The stock is bouncing around in a sideways range for now but it should get its sea legs as investors embrace income and defense in the post-pandemic world. HOLD

Brookfield Infrastructure Partners (BIP – yield 3.7%) – There’s a good reason this infrastructure partnership stock just made a new all-time high. It is a reliable and defensive dividend payer in a subsector that is becoming increasingly popular as the new administration embraces more spending. As well, BIP should be a boost in growth this year as its transportation assets recover and new acquisitions boost the bottom line. BUY

Enterprise Product Partners (EPD – yield 7.7%) – What a difference a few months make. After wallowing in doghouse oblivion for almost all of 2020, this midstream energy giant has caught fire. It’s up over 40% since early November. After consolidating briefly, EPD is on the move again and just made a new recent high. I don’t think the party is over either. It’s still absurdly undervalued and should continue to move higher as the recovery gains traction over the course of this year. BUY

STAG Industrial (STAG – yield 4.7%) – 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 struggled while investors gravitated toward growth stocks. But I think STAG is very well positioned ahead of 2021 with its cyclical industrial properties and exposure to e-commerce. HOLD

Verizon Communications (VZ – yield 4.4%) – This wireless company stock has been a disappointing performer. Of course, it’s at the low end of the recent range right now. I like VZ going forward for two reasons. One, it’s a great down market stock that’s nice to have with the market at all-time highs. Two, it should benefit as investor focus comes off the pandemic and politics and 5G becomes a much bigger market story. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.6%) – I love this company longer term. It has one of the best pipelines in the business and it still sells at a great value with a high dividend. In the near term, I’m a little torn. The stock has had a great run recently and soared to a new short-term high. But ABBV has a recent pattern of going up and down on a longer-term uptrend. I’m not sure if the stock will be true to its recent pattern and pull back over the next couple of months, or if it will break out to a new level. I’m sticking with the whole position for now. But I’ll watch it closely and reevaluate on a weekly basis. HOLD

Altria (MO – yield 8.4%) – This is a great income stock selling at a bargain price with a safe dividend. The prognosis for the stock is interesting. MO has been in a long-term downtrend since 2017. But the downtrend has leveled off for almost a year. It could be that the bottom is already in and the stock is reversing the longer trend. I think the stock is pretty solid for now either way. The jury is still out where the stock will trend longer term. BUY

Broadcom Inc. (AVGO – yield 3.2%) – This is one of the few high-quality 5G stocks that is still relatively cheap ahead of what should be a great year for stocks exposed to the new technology. The stock has been on a spectacular uptrend for almost a year now. This 5G is a big deal. And it should be an even bigger market story as the pandemic fades over the course of the year. AVGO could find itself in the middle of the next hot thing in technology, and that would be great for the stock. BUY

Digital Realty Trust (DLR – yield 3.2%) – Contrary to what recent performance would indicate, this data center REIT is a good stock. The data center business is fast growing and should continue to get a boost and the need for more technology infrastructure proliferates and a higher rate as new technologies develop in the future. But this stock dances to its own beat and tends not to move with the market. It’s been a dog with fleas since October as investors have discovered new shiny pennies. But it’s at the low point of the range, sells at a good valuation, is great in a down market and should trend higher in the months ahead. HOLD

Rating change: “BUY” to “SELL A THIRD”
Eli Lilly and Company (LLY - yield 1.7%) – I think this is the best big pharmaceutical company on the market. News has been good, very good. Earnings were better than expected, they raised the dividend, the election went okay, it’s Alzheimer’s drug got great results, and it just bought a company that does cancer antibody therapies that the market likes.

LLY is up 52% since the election. That’s a massive short-term move for a big pharma stock. This latest thrust higher has taken it over 200 per share, and it may have more to go. But it is very consistent with the stock’s personality to pull back after such a move. I still think the price will be higher in a year. But I don’t want to play Russian roulette with the entire position in the near term. Let’s take a little off the table. SELL A THIRD

Rating change: “HOLD” to “SELL A THIRD”
Innovative Industrial Properties (IIPR – yield 2.8%) – This is a tough call. The company is earning money and growing earnings at an incredible pace. It was selling well below what it was worth. But the stock is up 64% since the end of October and 312% since last March. The marijuana sector is hot and IIPR could well have another move higher left in the tank. But it has leveled off over the past month, looking poised for a move somewhere. It can be a very volatile stock, and I would never forgive myself if I didn’t take something off the table after a 165% gain in the position. SELL A THIRD

Qualcomm Inc. (QCOM – yield 1.6%) – How does another new all-time high sound to you? The stock continues to move higher even after returning 100% since being added to the portfolio a little over a year ago. But I don’t think the party is over. Qualcomm is a primary beneficiary of the 5G rollout as it currently has the only 5G smartphone chip and other important supporting technologies. 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 market driver in 2021 as the pandemic finally fades. HOLD

Realty Income (O – yield 4.8%) – This legendary income stock has been all stuck in the mud. It’s gone nowhere since last June. The vaccine euphoria should have lifted O more by now as more confidence returns to the retail sector. It is selling at a historically cheap valuation and it grew earnings in the first nine months of the year despite the lockdowns. But I guess investors are too busy buying LLY, IIPR and QCOM to care. Hopefully, investors will realize the value before we lose patience. BUY

U.S. Bancorp (USB – yield 3.7%) – The stock is down over 4% today after the bank reported fourth-quarter earnings results. Earnings were in line with forecasts. For the year, earnings declined 12% and revenue increased 1.45%. That’s not bad at all in a pandemic-stricken year. Results were hurt by lower interest income and higher loan loss provisions. Big deal—everybody knows 2020 stunk. The excitement in the stock is where it is going when the pandemic ends and a full recovery takes hold. The market also didn’t like it that the bank didn’t issue guidance. I consider this a buying opportunity. BUY

Valero Energy Corp. (VLO – yield 7.0%) – After a huge upward move since November, the refiner stock pulled back a bit. But it has been on the rise again since late December. VLO is a simple story at this point. It is a high leverage play on a full recovery in 2021. Business should inevitably improve as lockdown restriction ends and demand for gasoline and diesel rises. And at less than 60 per share, VLO still has a long way to go to get to the pre-pandemic price of around 100. BUY

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.2%) – 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 at about 1%, the yield isn’t bad for safe money by today’s standards. BUY

Invesco Preferred ETF (PGX – yield 4.9%) – This preferred stock ETF is much less volatile than the stock market and provides a big 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 1.7%) – Through most of the market recovery pandemic beneficiary stocks were hot. Then, post-pandemic or “full-recovery” stocks got hot. In a few months something else will be hot. But none of those shifting fads seem to matter to this combination regulated and alternative energy utility. Rock solid income combined with the growth and excitement of alternative energy is always a winner with investors. And NEE is the poster child. HOLD

Xcel Energy (XEL – yield 2.7%) – This smaller and more volatile alternative energy company is near the low point in a pattern that moves up and down on a longer-term uptrend. It’s been struggling of late as investors focus on other things after the vaccine announcement and anticipation of a full economic recovery. There is no apparent fundamental reason of the recent decline as of yet. But we’ll get a better picture of things after the earnings announcement later this month. BUY

CDI Portfolio