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Dividend Investor
Safe Income and Dividend Growth

February 3, 2021

The fourth quarter earnings season is well under way and the results have been somewhat spectacular so far, and much better than expected.


Fourth Quarter Earnings Come Pouring In
It’s earnings season.The fourth quarter earnings season is well under way and the results have been somewhat spectacular so far, and much better than expected. I’m not surprised. The economy has exceeded expectations in every phase of the recovery so far.Wall Street types and media people tend to have a negative bias when it comes to the economy. But the market gets it. Better than expected results and an optimistic market provide confidence for a robust and full recovery later this year. The market rally on the expectation of a full recovery with loads of stimulus and low interest rates is likely correct.

Of course, that doesn’t mean that stocks can’t pull back at some point. After the huge surge since the end of October, a pull back of some sort is likely overdue. Don’t be surprised if things get funky in the next couple of weeks.

But things still look good for the rest of the year. Any pullback should present a good buying opportunity, and we will take advantage.

Meanwhile, the crazy “short squeeze” stuff that was the talk of the market last week seems to have abated for now. It looks like we’re back to the stimulus hopes and the vaccine progress for now.

High Yield Tier
Brookfield Infrastructure Partners (BIP – yield 3.7%) – This infrastructure partnership reported solid earnings this morning with adjusted funds from operations per share increasing 11.6% year over year and up 2.3% for the full year versus 2019. That rock solid performance came in a year where a pandemic crippled the global economy. The company goes right on generating consistent revenues even when all Hell breaks loose. The partnership is well positioned going forward with recent acquisitions to boost earnings and plenty of liquidity. BUY

Enterprise Product Partners (EPD – yield 8.5%) – The midstream energy partnership also announced earnings today. For the quarter, funds from operations (FFOs) decreased 0.06% and distributable cash flow (DCF) was even with last year’s quarter. On the year, FFOs fell 9.6% and DCF decreased 3.2% versus 2019. That pretty solid for one of the worst years ever for energy. The market doesn’t seem thrilled as the stock is down 1.4% on the day so far.

The main event is still a full recovery ushered in by the vaccines. Business has already rebounded to pre-pandemic levels and should get much better as the economy opens up. Last year was lousy but Enterprise still proved resilient. I consider this foolish drop in price a buying opportunity. BUY

STAG Industrial (STAG – 4.6%) – This monthly paying industrial REIT has weathered the pandemic very well. Its biggest tenants are Amazon (AMZN) and the Federal government. STAG collected 98.2% of third quarter rents owed. And the CEO said the industrial real estate market has already been restored to pre-pandemic levels. It’s a solid holding heading towards a full recovery and it’s still cheap. HOLD

Verizon Communications (VZ – 4.6%) – The performance has been disappointing, to say the least, in this great market. VZ has been a drag on the portfolio. However, it is trading near the low point of its range and the stock is a very strong down-market performer. With the market looking somewhat frothy at this point, VZ isn’t a bad stock to have right now. The stock could get a decent ride as 5G becomes a bigger story in the post pandemic market as well. HOLD

Dividend Growth Tier
AbbVie (ABBV – 5.0%) – The stock climbed 1.7% in pre-market trading as AbbVie reported fourth quarter earnings that beat profit and revenue expectation and issued upbeat guidance for 2021. Revenues soared 59.2% from the year ago quarter, reflecting the Allergan merger. Earnings per share rose 32% versus the year ago quarter. There was also some positive news on its new drug and Humira sales grew 4.8% on the year while the market fretted about overseas competition.

The merger with Allergan, completed in the first quarter, appears to be going well. That removes an element of doubt that had been somewhat clouding stock performance. It’s a nice shot in the arm when the stock appeared poised to pull back after a recent rally. We’ll see if it breaks out from here after the news. But earnings were good. HOLD

Altria (MO – 8.3%) – Altria announced earnings last week where revenues topped estimates and earnings missed very slightly. It showed resilience as earnings grew 5% year over year. The price pulled back initially but has since been recovering. There really isn’t any news here. MO is a solid income stock for now, selling at a cheap valuation. The longer term will depend on whether it can develop new sources of revenue to offset smoking declines. It whiffed on JUUL but has other possibilities. We’ll see. For now, it’s okay for income investors. BUY

Broadcom Inc. (AVGO – yield 3.1%) – The market could turn from bullish to bearish. The virus could worsen and the recovery could be delayed. Politics could get even uglier. But 5G is coming fast regardless of that stuff. And Broadcom will benefit hugely. I could point out clever nuances about the company and stock, but the story is really as simple as that. AVGO should benefit in terms of higher earnings and more investor interest as the pandemic fades in the months ahead. BUY

Digital Realty Trust (DLR – yield 3.0%) – This one appears to have started working. The stock was trading near the low point of the short-term pattern in a longer-term upward trend after wallowing for a few months. But it has bounced nicely off the recent lows and is up 12% since mid-January. It’s a solid REIT in a growth business that doesn’t stay cheap for very long. It moves independently of the overall market and I’m very comfortable owning it here. BUY

Eli Lilly and Company (LLY - yield 1.7%) – The big pharmaceutical company reported earnings last week that topped estimates. Revenue grew 22% from last year’s quarter and earnings soared 41%, helped by sales of the new Covid antibody treatment. The stock initially soared to a new all-time high but has since pulled back as investors took profits on the news.

This is a best-in-class company with an amazing pipeline. It should continue to thrive longer term. But the stock has soared 67% since the beginning of November. That’s a massive short-term move for a big pharma stock and a pullback was inevitable. We took some profits last week not far from the high. HOLD

Innovative Industrial Properties (IIPR – yield 2.6%) – This marijuana REIT is again forging to a new all-time high and may be breaking out of the recent range. IIPR has returned 190% so far since being added to the portfolio in December of 2019 and it looks like there might still be more in the tank. We took some profits last week as the market is looking frothy. The stock could forge ever higher or come down fast. We locked in a huge profit and we’ll see how much more is to be had from the remaining position. HOLD

Qualcomm Inc. (QCOM – yield 1.6%) – Despite the 100% return in the position so far, QCOM is still looking strong. It’s technically solid ahead of what should be a great year as 5G technology proliferates and royalties boost revenue. It’s still not overly pricey and investors should embrace the 5G story as the pandemic finally fades out of the headlines later in the year. Analysts are forecasting around 70% earnings growth for 2021. HOLD

Realty Income (O – 4.7%) – This is a good down market stock that sells at a historically very cheap valuation and pays a strong and reliable dividend. It’s also true that the stock should benefit as the pandemic fades and the economy gains more traction later in the year. The stock doesn’t really deserve to be as cheap as it is because the REIT grew earnings in the first nine months of the year despite the lockdowns. Despite lackluster performance since the summer, I like it now. BUY

U.S. Bancorp (USB – 3.8%) – The stock has run into a rough patch of late. It’s pulled back from about 50 per share to the current 44.31 since about the middle of January. USB appears to be near a low point in the upside trading range that has existed since early November. The same story is intact, and the recent pullback represents a good buying opportunity. Rising rates and a full recovery should propel profits and the stock higher as the year progresses. BUY

Valero Energy Corp. (VLO yield 6.8%) – This high leverage play on a full recovery has been moving in a sideways range since early December. It hasn’t really pulled back off a huge run higher after the vaccine announcement. It looks to be consolidating and forming a base and will likely spring higher again at some point. This a top-notch refiner that is sure to benefit if the full recovery that the market is already at least partially pricing in comes to fruition. VLO had a huge 5% up move today and may be breaking out. 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%) – The combination regulated and alternative energy utility announced fourth quarter results that beat estimates. The company grew adjusted earnings per share 11.1% for the quarter and 10.5% for 2020. Earning were largely driven by the alternative energy business which grew earnings by 15% for the year. The stock sprung to a new all-time high last week but has pulled back since. That’s okay. NEE is still very much in a long term uptrend. It may have just gotten slightly ahead of itself and has come back near the trend line. HOLD

Xcel Energy (XEL – yield 2.7%) – This smaller and more volatile alternative energy utility announced earnings last week that matched estimates. The utility grew earnings year over year but at a slightly slower pace due to the challenges from the pandemic economy. XEL 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. It is well positioned as a safe stock in a high market and an alternative energy leader with a much more climate-change-oriented Administration. BUY

CDI Portfolio