June 16, 2021

A Sideways Market Drives Investors to Dividends
Sideways is a good thing. The market had a huge recovery from the pandemic and really soared between November and May. After such a rapid move higher in a short amount of time, a correction would be normal.

The fact that the market is going sideways in the consolidation period and not correcting is bullish. Stocks can’t rise forever. But investors just can’t find enough to dislike about the current environment to get any selling momentum. It’s still a booming economy, with low interest rates and trillions in stimulus floating around.

The current market can’t seem to get excited or dejected enough for a move either way. But the sideways market has driven more investors toward income and value stocks. Many previous market laggards are slowly forging ever higher and making new highs while the overall market flounders.

Portfolio positions including Enterprise Product Partners (EPD), ONEOK (OKE), STAG Industrial (STAG), Brookfield Infrastructure Partners (BIP) and Digital Realty (DLR) have broken out to highs and have solid momentum. The move toward these stocks was overdue. Finally, investors are appreciating the value of dividends.

Meanwhile, energy stocks have come back to the previous highs after a consolidation. I still believe the sector isn’t done yet and we should see good returns in that sector through the rest of the year.

High Yield Tier
AGNC Investment Corp. (AGNC – yield 8.2%) – The mortgage REIT had a rough week. It is down over 7% in the last five days, including a 5% down move in one day. The company reported a book value (BV) decrease of 6.4%, filed for a new offering, and declared the same dividend. The main issue is the BV decrease as a result of prepayments as interest rates have trended down. AGNC benefits from a widening yield spread, but it has been contracting lately. But earnings are still solid, and it is still likely that rates trend higher from here. BUY

Enterprise Product Partners (EPD – yield 7.1%) – This midstream energy partnership looks very good here. It’s up over 30% for the year and is making new post-pandemic highs. Despite the recent performance and momentum, it still sells well below the pre-pandemic levels while earnings are higher, and the energy environment is better. It has a terrific yield and a great value with momentum too. BUY

ONEOK Inc. (OKE – yield 6.7%) – This fellow midstream energy company, in the form of a regular corporation, is a similar story to EPD, except it tends to move faster. It’s well worth noting that OKE is still priced more than 25% below the pre-pandemic high despite the fact that it grew earnings in 2020 and business is booming in the full recovery. I don’t see any reason why this midstream player won’t continue to trend higher in the months ahead, while paying you a great yield to boot. BUY

Realty Income (O – yield 4.1%) – This legendary income stock also made a new post-pandemic high within the last week. It too is still well below the pre-pandemic price despite higher earnings. Realty deserves a higher price, and it is benefiting from the high demand for income and value in this sideways market. BUY

STAG Industrial (STAG – yield 3.8%) – This more cyclical industrial REIT has moved ahead of its peers. It eclipsed the pre-pandemic high last August and has been making a series of new all-time highs over the past several weeks. STAG has returned over 26% YTD, twice the return of the S&P 500. It’s a great company. Let’s see how far it runs. HOLD

Verizon Communications (VZ – yield 4.4%) – I’ll give VZ more time because things might improve for the wireless giant. Its advantage of being more focused on the core wireless business was made clear by AT&T’s issues from trying to do the same thing. Also, Verizon is shedding what’s left of its media companies and honing focus even more. Plus, 5G is really arriving and should be a bigger story in the market as we move past the pandemic. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.5%) – This biopharmaceutical giant is within a whisker of the 52-week high. Fundamentally, AbbVie has one of the best pipelines in the business and is fully capable of replacing Humira revenues when that drug loses its U.S. patent in 2023. But because of the worry, it sells at an absurdly low valuation. Technically, the stock is breaking out to new recent highs. Usually when it does that it runs for a while. BUY

Broadcom Inc. (AVGO – yield 3.0%) – I believe this beast is being held back temporarily by the consolidation in the technology sector. Beyond this short-term noise, Broadcom is ideally positioned as a crucial technology infrastructure leader that will benefit as technology proliferates and also as 5G rolls out. It could bounce around for a while, but it is still a good buy for the longer haul. BUY

Brookfield Infrastructure Partners (BIP – yield 3.8%) – Brookfield is in a bidding war with Canadian midstream company Pembina Pipeline (PBA) for Canadian oil infrastructure company Inter Pipeline (IPL). Acquiring IPL could be a needle-mover and the stock may bounce around a bit as news on this acquisition comes out. BIP continues to trend slowly higher and just made a new all-time high. BUY

Chevron Corp. (CVX – yield 5.0%) – The energy-giant stock had a huge move earlier in the year. But CVX never really had a pullback of any significance after the surge ran out of gas. Despite its less volatile stock price, Chevron is more levered to the price of oil than the other energy giants. It’s worth noting that oil prices have been sharply on the rise and just hit the highest level since September 2018. That will juice the bottom line and should propel CVX higher in the months ahead. HOLD

Digital Realty Trust (DLR – yield 3.0%) – I sound like a broken record. But this former market laggard just rose to a new all-time high. It was a terrific performer in and right after the pandemic bear market. But then it floundered for a long time. It has since come all the way back and may have further to go. BUY

Eli Lilly and Company (LLY – yield 1.5%) – LLY has made a big move higher over the past months. The big news was FDA approval of Biogen’s (BIIB) Alzheimer’s treatment. The news stoked optimism about Lilly’s pending Alzheimer’s treatment. Lilly has a better drug that could be a potential mega blockbuster. The fact that the FDA gave Biogen’s drug expedited approval greatly increases the odds that Lilly’s phase III candidate will gain approval, and perhaps on an expedited basis. Such a drug could be a game changer for the stock. We’ll see what happens. But it’s certainly positive news. HOLD

KKR & Co. Inc. (KKR – yield 1.0%) – The alternative investment wealth manager stock still looks good. It finally pulled back a little bit after an impressive three-month run. But the environment for KKR continues to be terrific. The economy is booming, and interest rates are trending higher. Investors are also demanding diversification from the stock and bond market and the alternative investment business continues to grow at a fever clip. BUY

Qualcomm Inc. (QCOM – yield 2.0%) – Most of what I said about AVGO is true for QCOM. It’s been held back by the sector recently. But great things are still happening for the company. Earnings were stupendous. The chip maker trounced expectations and grew revenue 52% and adjusted earnings 116% over last year’s quarter. Qualcomm should continue to benefit mightily from the 5G rollout in the near term, as it earns royalties on phone sales. When 5G becomes a bigger story in the market, QCOM could have another big run higher. HOLD

U.S. Bancorp (USB – yield 2.9%) – This best-in-class bank has pulled back about 7% from the recent high in mid-May. It’s mostly consolidation after a big surge. But interest rates have not been moving higher as anticipated. Higher rates increase the spreads on loans. Recently, rates have retreated, and they may be affecting the stock price. However, I do expect rates to trend higher over the rest of the year in the full recovery. BUY

Valero Energy Corp. (VLO – yield 4.8%) – This refiner has returned about 50% YTD. VLO had a huge surge earlier this year and then pulled back. It has since returned and made a new 52-week high earlier this month. The stock is highly levered to a full recovery, and I think that’s a good bet. Demand for gasoline, diesel and other refined products will soar as the economy accelerates. This stock isn’t done yet. There should be another big move coming. HOLD

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 1.8%) – 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 5.0%) – After falling during the pandemic, this preferred stock ETF has recovered and is back near the pre-pandemic high. 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. HOLD

NextEra Energy (NEE – yield 2.1%) – This combination regulated and alternative energy utility is down but not out. After relentlessly forging higher for a long time, this juggernaut lost its mojo. It’s still down about 15% from the high in January. But nothing has changed fundamentally, and the environment ahead will likely be even better for NEE than before as the new Administration showers clean energy companies with subsidies and tax breaks and other goodies. BUY

Xcel Energy (XEL – yield 2.6%) – This smaller and lesser-known alternative energy utility may be moving ahead of NEE. The stock pulled back sooner and by more than NEE. But XEL is already recovering from its lull. The stock surged over 25% from early March until last month and has been going sideways since. But XEL is only a little off the high and should trend slowly higher from here. BUY