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Dividend Investor
Safe Income and Dividend Growth

April 28, 2021

The market just keeps marching higher despite increasing skepticism.


The Market Inches Higher Amidst Soaring Skepticism
The market just keeps marching higher despite increasing skepticism.

The Promise Land of booming economic growth, trillions in stimulus and low interest rates continues to lure stocks higher. But many Wall Street analysts, in an effort to justify their salaries, are trying to get ahead of the curve and predict worsening times for the market.

Sure, GDP will be the best in decades this year. But Goldman Sachs is saying that the booming growth will peak in the second quarter and decrease every quarter thereafter until the end of 2022. Deutsche Bank analysts are calling for a 10% correction. And Bank of America has a year-end target price for the S&P 500 that’s 8% below the current level.

It’s likely true that the recent pace can’t last. At some point, the booming recovery will be priced into stocks and investors will start fretting about post-pandemic problems. The party will end and the hangover will begin someday. No one knows when that will happen and no one can predict the near-term gyrations of the market, most especially these nabobs of negativism on Wall Street.

Even with elevated expectations, I think it is likely that the economy and corporate earnings will exceed them. There is a good chance that the market will continue to forge higher. But even if a correction occurs, it should present a buying opportunity ahead of an unprecedented accommodating habitat for stocks.

It’s also a huge week for technology. Many major industry players report first-quarter earnings this week. The next couple of days could well determine the near-term direction of the that sector. The nature of this week’s earnings will affect portfolio positions Broadcom (AVGO) and most especially Qualcomm (QCOM), which reports after the market close today.

I’ll have more to say in the monthly Cabot Retirement Club video call at 2:00 p.m. ET tomorrow. If you are a CRC member, please try to tune in. I promise to do my best to make it worth your while.

High Yield Tier
AGNC Investment Corp. (AGNC – yield 8.1%) – The mortgage REIT announced earnings on Tuesday that beat expectations and the stock was up 2.25% for the day. It came out with earnings of $0.76 per share (calculated by net spread and dollar roll income) versus an expected $0.57. Average assets yields were higher, as the yield curve steepened, and prepayments were down from last quarter. It’s good news and a big one-day move for the stock that reaffirms the rationale for buying it. BUY

Rating change “HOLD” to “SELL”
Altria (MO – yield 7.3%) – The uptrend that had been in place since late October has ended. The stock had soared 45% in that time frame and looked to disrupt a downtrend that had been in place since 2017 by making the first series of higher highs. It got knocked back a couple weeks ago when the FDA announced its intention to limit nicotine levels in cigarettes all the way down to nonaddictive levels. The cigarette maker stock fell back about 10% after the news.

It’s a great income stock with a high and safe dividend. But the stock price continues to wallow because the company is in a dying business with no compensating offset in sight. There isn’t a good enough reason to believe that future price deterioration won’t destroy the value of the yield. At the same time, there are just too many good opportunities for income and total return elsewhere. SELL

Enterprise Product Partners (EPD – yield 7.7%) – Although this energy infrastructure giant has moved over 40% higher since early November, it’s looked lackluster over the past few months. It’s still trading right around the high made in January. But it is still in a very positive pattern of making higher highs and higher lows. The stock is still well below pre-pandemic levels ahead of what promises to be a booming energy environment in the months ahead. A great yield and a cheap price that’s going the right way should prove to be a winning holding. BUY

Realty Income (O – yield 4.1%) – I feel vindicated. I choose this legendary income stock for the portfolio because it was cheap ahead of a greatly improving environment. That was the time to pick up a stock like this. But the market never gave a darn, until now. Investors appear to have discovered that this great stock was cheap in an expensive market and offered a great opportunity for a safe and high yield with likely appreciation. O has moved over 15% higher since early March. The stock is still well below pre-pandemic levels ahead of environment that promises to be better. BUY

STAG Industrial (STAG – yield 4.0%) – The long-neglected superstar REIT has also shifted into high gear. It has soared over 20% since late January and has returned to its longer term uptrend line. Industrial REITs and e-commerce facilities is a growing business with a favorable supply/demand dynamic. It’s a great business and this is a marvelous conservative stock holding that should continue to prosper. It was downgraded to a HOLD last week because it’s no longer a bargain. But STAG is still well worth holding if you own it already. HOLD

Verizon Communications (VZ – yield 4.4%) – This colossal bore of a stock pays a good and safe yield while the price goes nowhere. Ordinarily, I wouldn’t tolerate such a low total return holding in an environment with so many better opportunities. But it continues to be a holding for two reasons: down market performance and 5G.

It holds up well when the market tanks and you never know what will happen after an 80%-plus move from the bottom. But mostly it’s about 5G. The company should benefit greatly from the new technology, and 5G should emerge as a bigger story in the market after this pandemic nonsense finally fades. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.7%) – This might be my favorite stock. It still sells at a dirt-cheap valuation with one of the best drug pipelines in the business at a time when the population is aging at warp speed. On the surface, the stock hasn’t done anything since January. But it’s really so much better than that. It broke the pattern of pulling back after a surge and hung tough at the higher level, where it appeared to be consolidating before breaking even higher. Lately, it’s moved back to the recent high. This could be the start of something beautiful. We’ll see. HOLD

Broadcom Inc. (AVGO – yield 3.1%) – This is a big win for technology. Many important companies will report earnings in the days ahead. Technology has been the best performing market sector over the past month. The next few days should determine if the sector resumes its market leadership and dominance, or just bounces around in the near term. Either way, this dominant tech company is a great holding amidst this technological revolution. BUY

Brookfield Infrastructure Partners (BIP – yield 3.8%) – This infrastructure partnership is a great place to be right now. It’s near the all-time high and still trending higher ahead of what is likely to be rising earnings and greater popularity with the new administration in Washington. But it’s sort of like rooting for a turtle in a race. It moves so slow that you have to look at a chart to realize it’s trending higher. That’s okay. It’s going in the right direction. BUY

Chevron Corp. (CVX – yield 5.1%) – It’s not the beginning for the energy resurgence, but it isn’t the end either. The surge at the beginning of the year is over. But more good things should be in the offing for CVX as we enter one of the most booming times for the energy industry in years. HOLD

Digital Realty Trust (DLR – yield 3.1%) – The neglected specialty REIT has finally gotten a move on. It’s been trending steeply higher since the beginning of March and should have more room to run. It’s in the high-growth data center business and is a conservative way to play technology. BUY

Eli Lilly and Company (LLY – yield 1.8%) – This best-in-class big pharma company missed on earnings this week and also lowered 2021 guidance. The stock has fallen about 4% since the announcement. The culprit was lower sales for its Covid antibody drug. But that’s a short-term issue. The great pipeline of new drugs is still kicking butt. This is still a phenomenal health care company that should move higher over the longer term. HOLD

KKR & Co. Inc. (KKR – yield 1.0%) – This alternative investment wealth manager stock is really delivering as advertised. It just keeps forging higher and higher ahead of a great environment for the financial sector. At some point, the stock will probably have to take a breather. But hopefully it runs for a while longer. BUY

Qualcomm Inc. (QCOM – yield 2.0%) – After a huge surge higher, QCOM has floundered since announcing fourth-quarter earnings three months ago. 5G phone sales were slower than expected because of industry-wide supply problems. Qualcomm reports first-quarter earnings after the close today. There is a good chance that the report will determine the near-term direction of the stock. I still like the stock longer term as it is benefitting mightily from 5G. We’ll see what happens with earnings. HOLD

U.S. Bancorp (USB – yield 2.9%) – Like KKR, USB seems to trend relentlessly higher in a great environment for banks. The economy is starting to boom and interest rates will likely move higher. The stock seems destined to reach the pre-pandemic high of over 60 per share. Hopefully, it moves past that and never looks back. BUY

Valero Energy Corp. (VLO – yield 5.6%) – The same general dynamic that I mentioned about CVX applies to this refiner stock, except to a larger degree. It pulls back more than the energy sector when it consolidates and soars higher and faster when it gets back on track. The full recovery is still coming and the refining business will benefit mightily. Meanwhile, VLO is still well below pre-pandemic levels while the environment ahead is likely to be a lot better. It may continue to consolidate for a while longer, but the stock should be back in business before too long. HOLD

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 1.9%) – 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 matures at the end of this year. HOLD

Invesco Preferred ETF (PGX – yield 5.0%) – 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. Since falling sharply in the worst of the bear market, the fund price recovered to pre-pandemic levels and then leveled off. It should continue to be a solid holding from here, even with interest rates rising. HOLD

NextEra Energy (NEE – yield 2.0%) – It’s surprising that this alternative energy superstar sold off ahead of what are likely to be glorious days for clean energy under the new administration in Washington. But it did. There really isn’t a bad time to buy this stock for the longer term. But following a rare selloff is a fantastic time to buy it. BUY

Xcel Energy (XEL – yield 2.6%) – This alternative energy utility has been hot stuff since it was raised to a BUY. It has soared 20% since early March. That’s a big move for a conservative utility. Investors will continue to love a conservative way to play alternative energy. After a rare selloff during the market’s cyclical stock bender, XEL is coming back with a vengeance. I think there’s more in the tank. BUY

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
Total ReturnCurrent YieldDiv Safety RatingDiv Growth RatingCDI OpinionPos. Size
AGNC Investment Corp.04-14-2117Monthly1.448.5%182%8.1%BUY1
Altria (MO)12-20-1850Qtr.3.446.9%4713%7.3%8.57.9SELL1/2
Enterprise Product Partners (EPD)02-25-1928Qtr.1.806.40%24-4%7.7%8.37BUY1
Realty Income (O)11-11-2062Monthly2.814.5%6911%4.1%9.39.8BUY1
STAG Industrial (STAG)03-21-1824Monthly1.456.0%3679%4.0%5.25.9HOLD1/2
Verizon Communications (VZ)02-12-2058Qtr.2.514.3%563%4.4%8.69.2HOLD1
Current High Yield Tier Totals:5.6%20.4%5.5%
Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.206.7%11263%4.7%108.6HOLD2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.403.2%4585%3.1%BUY1
Brookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.045.0%5461%3.8%6.58.6BUY2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.165.7%10511%5.1%HOLD1
Digital Realty Trust (DLR)09-09-20147Qtr.4.643.2%1473%3.1%6.810.0BUY1
Eli Lily and Company (LLY)08-12-20152Qtr.3.402.2%17925%1.8%10.48.3HOLD2/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.581.2%5720%1.0%BUY1
Qualcomm (QCOM)11-26-1985Qtr.2.603.1%13670%2.0%8.09.0HOLD1/3
U.S. Bancorp (USB)12-09-2045Qtr.1.683.7%5929%2.9%BUY1
Valero Energy Corp (VLO)06-26-1984Qtr.3.924.7%74-7%5.6%6.48.6HOLD1/2
Current Dividend Growth Tier Totals:3.9%28.0%3.3%
Safe Income Tier
BS 2021 Corp Bond (BSCL)08-30-1721Monthly0.422.0%218%1.9%9.04.0HOLD1/2
Invesco Preferred (PGX)04-01-1414Monthly0.745.3%1555%5.0%6.31.1HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.543.5%7786%2.0%9.48.0BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.835.9%69184%2.6%9.57.0BUY2/3
Current Safe Income Tier Totals:4.2%83.3%2.9%