The Sector Rotation
Energy and technology are no longer driving the market higher. As a result, the S&P 500 is kind of moving sideways.
That’s fine. Technology has been red hot through this market recovery (not to mention the last ten years) and was due for some sort of pullback or consolidation. Energy stocks soared a lot higher in a short period of time and were due to cool off.
At the same time, long neglected defensive stocks are finally starting to get some love. Utilities are actually the best performing market sector over the past month. That had been the worst sector of the jilted defensive stock clan through the cyclical bender and before. A sector rotation is good news for several of the stocks in this portfolio that offer value and solid dividends but had no momentum.
Many stocks in this portfolio should be poised to move higher in the weeks ahead. But we’re not giving up on technology positions Qualcomm (QCOM) and Broadcom (AVGO) or energy positions Valero Energy (VLO), Chevron (CVX) or Enterprise Product Partners (EPD).
Everybody wants to own technology and that sector shouldn’t be down for long. Energy stocks are still below pre-pandemic levels despite the recent surge ahead of a booming economy and should be back in business in the months ahead.
It also worth noting that the financial sector, which had been a stellar performer in the cyclical rally, hasn’t run out of steam. Those stocks didn’t get nearly as overextended as energy stocks in the near term and still offer momentum, along with value. That should lift financial positions U.S. Bancorp (USB) and KKR & Co. (KKR) in the near term and throughout the rest of the year.
High Yield Tier
Altria (MO – 6.7%) – This cigarette maker has returned 27% YTD, compared to a 5.5% return for the S&P 500. That’s rare and welcome news to a stock that had been on a downtrend since 2017. MO got a boost this week when investment firm Jefferies raised the price target to 58 per share (currently 51). The analyst basically said that Altria has more ability to offset smoking volume slippage with E-cigarettes, marijuana and other things than the market had been giving it credit for. We’ll see if the stock continues to break out or pulls back from here. HOLD
Realty Income (O – 4.4%) – This legendary income REIT has been moving higher of late but it’s still within the sideways range that’s persisted since last summer. Realty’s earnings were far more resilient than its retail property peers through the pandemic and it sells at a compelling valuation with a solid and growing dividend. That’s good stuff. The market should come around eventually. BUY
STAG Industrial (STAG – 4.3%) – This industrial REIT has been doing better lately too. It’s actually up about 15% since the beginning of February. The REIT sector has been picking up as neglected stocks come back in vogue. But I thought, as a cyclical industrial REIT, STAG should have been doing better since the vaccine announcements. Maybe the market is finally agreeing. BUY
Verizon Communications (VZ – 4.4%) – This wireless giant has basically become a bond substitute with more volatility and a higher yield. That’s not bad. There is a place for such stocks with today’s awful bond market. VZ has also been moving up lately and is probably on the way to the high point of the recent range. And it offers strong down-market performance in case things get funky. It could be more as 5G becomes a bigger story. We’ll see. HOLD
Dividend Growth Tier
AbbVie (ABBV – 4.9%) – The bad news is that ABBV has been going sideways since December. The good news is that it’s been trending sideways at the top of the recent range. Health care has been on the outs in the recent cyclical rally. But despite that, ABBV is hanging tough and not falling into the recent pattern of pulling back after a surge higher. It really looks like it’s forming a base from which to soar to a much higher level when the going gets good again. HOLD
Broadcom Inc. (AVGO – yield 3.1%) – In the near term AVGO is somewhat at the mercy of the tech sector, and I don’t know if the selling is over yet. But even if there is weakness over the next few weeks, I like AVGO’s prospects very much in the months ahead. Technology won’t be on the outs for long and this is a fantastic company that will continue to benefit from proliferation of technology. The stock should also get a boost from the 5G rollout as new technologies develop and it becomes of bigger story in the market. BUY
Brookfield Infrastructure Partners (BIP – yield 3.9%) – Sure, the infrastructure partnership stock hasn’t done much lately. But the bigger picture looks great. It’s still on a longer-term uptrend. Earnings will get a boost from the full recovery and new assets coming online. Neglected defensive stocks are coming back. And infrastructure is becoming a bigger story as the new Administration in Washington focuses on it. BUY
Chevron Corp. (CVX – yield 4.8%) – The torrid rally in energy stocks is over for now. That needed to happen. But this energy giant is looking ahead to a full recovery in the months ahead and still sells below pre-pandemic levels. It may not do much in the weeks ahead, but I’m expecting more good things from CVX over the course of the year. HOLD
Digital Realty Trust (DLR – yield 3.3%) – After stellar performance during the dark days of the pandemic as people used technology more than ever, this data center REIT became a poster-boy of an out-of-favor stock. But the recent aberration has made it a good value. It also might be breaking the downtrend since the summer. It’s a great growth REIT that’s cheap in an expensive market and offers great downside performance history in a down market. It just doesn’t have any momentum. But that could be finally changing. BUY
Eli Lilly and Company (LLY - yield 1.8%) – This biopharmaceutical giant was smoking hot after a plethora of good news in December and January. Then health care went out of favor, but it held its gain. Then it got a badly perceived trial result from its potential mega-blockbuster Alzheimer’s drug and pulled back. None of these developments changes the fact that this one of the very best big pharma companies with a spectacular pipeline. You should get further rewarded by being patient with LLY. HOLD
KKR & Co. Inc. (KKR – yield 1.2%) – I love the financial sector ahead of rising rates and a booming economy. The alternative investing trend is a big deal as well. And KKR is the best in that industry. Because of those two things, this stock should perform well for the rest of this year and beyond. It’s worth noting that KKR has been trending higher even in this choppy market. BUY
Qualcomm Inc. (QCOM – yield 2.0%) – Once the tech sector sorts out its business, QCOM should be in a great position. The rapid ascent halted after it announced that slower than expected 5G phone sales will last through the first half of this year because of industry-wide supply issue. But the market looks ahead and that issue is fading into the rearview mirror. I expect QCOM to make up for lost time in the months ahead. HOLD
U.S. Bancorp (USB – 3.1%) – This is a great bank and a great time to own it. Business should boom from a full recovery and rising interest rates going forward. It also still sells at a cheap valuation and has great momentum. Owning USB should be a rewarding experience over the course of this year. BUY
Valero Energy Corp. (VLO yield 5.5%) – This refiner stock is reflective of the energy sector, squared. It rose more and is pulling back more in the sector consolidation. It was bound to pull back after a huge six-week move of 50%. But the full recovery is still coming and the refining busines will benefit mightily. Meanwhile, VLO is still well below pre-pandemic levels, and things kind of stunk for refiners then. VLO may continue to consolidate for a while, but the stock should be back in business before too long. HOLD
Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.0%) – This short-term bond fund is a safe port. While the market is promising for the rest of the 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. That said, the bonds in this ETF mature at the end of this year. HOLD
Invesco Preferred ETF (PGX – yield 5.1%) – This preferred stock ETF is much less volatile than the stock market while providing a big yield. It also adds 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 2.1%) – This combination regulated and alternative energy utility stock got very out of favor during the cyclical stock rally. But it’s a defensive company with growth that offers a conservative way to play the growth of clean energy, and investors love it. It won’t be down for long and this is a good buying opportunity. BUY
Xcel Energy (XEL – yield 2.8%) – This smaller and more volatile alternative energy utility is a similar story to NEE. But XEL pulled back sooner and is on the rise before NEE. It’s up 14% since early this month. It’s still a good value that now has momentum and should be a precursor for what to expect with NEE. BUY
| High Yield Tier | ||||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on 3/31/21 | Total Return | Current Yield | Div Safety Rating | Div Growth Rating | CDI Opinion | Pos. Size |
| Altria (MO) | 12-20-18 | 50 | Qtr. | 3.44 | 6.9% | 51 | 23% | 6.7% | 8.5 | 7.9 | HOLD | 1 |
| Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.5% | 64 | 3% | 4.4% | 9.3 | 9.8 | BUY | 1 |
| STAG Industrial (STAG) | 03-21-18 | 24 | Monthly | 1.45 | 6.0% | 34 | 67% | 4.3% | 5.2 | 5.9 | BUY | 1/2 |
| Verizon Communications (VZ) | 02-12-20 | 58 | Qtr. | 2.51 | 4.3% | 58 | 5% | 4.4% | 8.6 | 9.2 | HOLD | 1 |
| Current High Yield Tier Totals: | 5.4% | 24.5% | 5.0% | |||||||||
| Dividend Growth Tier | ||||||||||||
| AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 6.7% | 109 | 54% | 4.9% | 10 | 8.6 | HOLD | 2/3 |
| Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 3.2% | 465 | 3% | 3.2% | BUY | 1 | ||
| Brookfield Infrastucure Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 5.0% | 53 | 55% | 3.9% | 6.5 | 8.6 | BUY | 2/3 |
| Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 5.7% | 105 | 16% | 4.9% | HOLD | 1 | ||
| Digital Realty Trust (DLR) | 09-09-20 | 147 | Qtr. | 4.64 | 3.2% | 142 | -2% | 3.3% | 6.8 | 10.0 | BUY | 1 |
| Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 2.2% | 188 | 23% | 1.8% | 10.4 | 8.3 | HOLD | 2/3 |
| KKR & Co. Inc. (KKR) | 03-09-21 | 48 | Qtr. | 0.58 | 1.2% | 49 | 5% | 1.2% | BUY | 1 | ||
| Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 3.1% | 133 | 60% | 2.0% | 8.0 | 9.0 | HOLD | 1/3 |
| U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.7% | 56 | 24% | 3.0% | BUY | 1 | ||
| Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 4.7% | 72 | -7% | 5.5% | 6.4 | 8.6 | HOLD | 1/2 |
| Current Dividend Growth Tier Totals: | 3.9% | 23.1% | 3.4% | |||||||||
| Safe Income Tier | ||||||||||||
| BS 2021 Corp Bond (BSCL) | 08-30-17 | 21 | Monthly | 0.42 | 2.0% | 21 | 8% | 2.0% | 9.0 | 4.0 | HOLD | 1/2 |
| Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 5.3% | 15 | 52% | 5.1% | 6.3 | 1.1 | HOLD | 1/2 |
| NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 3.5% | 76 | 77% | 2.1% | 9.4 | 8.0 | BUY | 1/2 |
| Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 5.9% | 66 | 166% | 2.8% | 9.5 | 7.0 | BUY | 2/3 |
| Current Safe Income Tier Totals: | 4.2% | 75.8% | 3.0% | |||||||||