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Dividend Investor
Safe Income and Dividend Growth

August 25, 2021

The summer malaise is in full swing. The market is doing pretty much exactly what it was doing when investors went on vacation and stopped paying attention.

A Typical Summer Market
The summer malaise is in full swing. The market is doing pretty much exactly what it was doing when investors went on vacation and stopped paying attention.

The booming economy with low interest rates and spectacular earnings is winning the tug-o-war against the delta variant and possible Fed tapering, for now. But not by much.

Beware of the sobered up and cranky post-Labor Day investor. People tend to take a fresh look at things after the summer. Often, summertime problems become a bigger deal. We may find that the delta variant becomes perceived as a much worse problem after Labor Day. More ugliness in the market after Labor Day is somewhat normal and the market could sell down.

But remember an important fact. Money still has no place else to go but stocks to fetch a decent return. That’s been the underlying situation in the market for a long time. And it’s been a bull market for a long time. Sure, investors may get spooked for a while. But fear always wanes. And when it does, investors find their way back to the only game in town.

A September selloff, if indeed it happens, will likely pose a buying opportunity. As well, investors have in my opinion become overly negative toward certain cyclical stocks. The energy stocks in this portfolio are still selling below pre-pandemic prices ahead of what is likely booming growth in the second half of the year.

Yield curve stocks like AGNC Investment Corp. (AGNC) and U.S. Bancorp (USB) have floundered amidst the falling yield curve as well. But the yield curve is likely to steepen over the rest of the year as the economy booms and inflation remains persistent.

Meanwhile, there are several ratings changes this week in the portfolio.

High Yield Tier
AGNC Investment Corp. (AGNC – yield 8.8%) – The mortgage REIT has been moving higher of late. While virus concerns are keeping the 10-year Treasury rate low, more and more investors are realizing it is likely headed higher in the months ahead. I believe the rate has fallen too far for the current booming economy and persistent inflation. The rate is likely headed higher from here, and AGNC should trend higher along with it. BUY

Blackrock Enhanced Capital and Income Fund (CII – yield 5.2%) – It’s still a good environment for CII. The market is still moving higher and making new highs but not running away. CII gets the benefit of price appreciation as well as income from covered calls. It is generating a strong income and growing in value at the same time. We’ll see what the market does after Labor Day. BUY

Enterprise Product Partners (EPD – yield 8.1%) – This summer has produced some ugly times for energy stocks in an otherwise very strong year. The whole sector has floundered since June as a consolidation took hold and then the delta variant created growth concerns. But energy is still near the top performing S&P sector YTD. The growth concerns are likely overblown as the economy is booming and the second half of the year should deliver huge profits. The market will again realize the value and you collect a massive 8.1% yield in the meantime. BUY

ONEOK Inc. (OKE – yield 7.2%) – Ditto what I said about EPD for OKE, except more so. OKE is more volatile and should have more upside when things turn around. The market may be dissing energy now. But great value with rapidly growing earnings and a high and safe dividend should find a way back into investors’ graces before long. The stock is also paying you to wait. BUY

Rating change “BUY” to “HOLD”
Realty Income (O – yield 4.0%) – Slow and steady wins the race. Returns haven’t been exciting. But Realty has a long history of boring investors all the way to the bank. The REIT recently raised guidance for the year. That’s solid. Its core of essential retail properties remains solid and the small percentage of those affected by the pandemic are bouncing back. I expect a slow slog higher from here. But near the high it is no longer in a great spot to initiate a position. HOLD

STAG Industrial (STAG – yield 3.5%) – Industrial properties are hot stuff, and so is STAG. The demand for industrial and e-commerce properties is through the roof and STAG is in the right place at the right time. That’s way STAG is near the all-time high. STAG exceeded expectations on earnings and forward estimates continue to rise. It’s a good business that should thrive in this economy and STAG is still small enough to get a lot of leverage out of the situation. HOLD

Verizon Communications (VZ – yield 4.5%) – The wireless giant stock takes market underperformance to an art form. It languishes around the safe level regardless of what the market does. But the recent earnings beat indicates that the strategy of investing heavily in 5G is starting to work and hit the bottom line. I’ll wait on this to see if the post-Labor Day market provides more enthusiasm for the 5G phenomenon and gets this stock moving. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.4%) – Ever so quietly, this biopharmaceutical giant has crept up to a brand new 52-week high and is within bad-breath distance of the all-time high made in early 2018. ABBV is only about 3% higher than it was in the middle of May but it’s moving in the right direction nonetheless. Meanwhile, this high-yielding best-in-class healthcare company is one of the best bargains on the market at just over 9 times forward earnings. BUY

Broadcom Inc. (AVGO – yield 3.0%) – The things to realize about this semiconductor and technology industry goliath is that 90% of internet traffic uses its systems and the company will also benefit disproportionately in the near term from 5G. AVGO has been sort of floundering along with the rest of the technology sector since February. But technology is where all the growth is beyond the pandemic recovery. And the market never sours on the sector for very long. BUY

Rating change “BUY” to “HOLD
Brookfield Infrastructure Partners (BIP – yield 3.6%) – This infrastructure partnership should start to go places. It’s already very near the all-time high. The Inter Pipeline acquisition should go through in the third quarter and be accretive to earnings immediately. It should bring already steadily rising earnings to another level. A likely passage by Congress of an infrastructure bill of some kind should increase investor awareness and interest in the rapidly growing infrastructure subsector as well. We will look to write calls in the near future as BIP moves higher. But at the high it is no longer in the ideal accumulation phase. HOLD

Chevron Corp. (CVX – yield 5.5%) – Despite this being peak earnings growth for the overall market, the strongest growth for Chevron should be in the second half of the year as it benefits from higher oil prices and a strong recovery. The delta variant and peak earnings may give some the impression that the party is over for CVX. But it should have another surge as business booms over the rest of the year. HOLD

Digital Realty Trust (DLR – yield 2.9%) – The world’s largest provider of data center properties has been trending higher in recent months and is not far away from the 52-week high. I like it because it is a huge player in a growth business that is levered to the megatrend of the technological revolution. It is also an unusual stock that doesn’t move with the overall market. It has a beta of just 0.13, meaning it is only a little more than one tenth as volatile as the S&P 500. It’s a good business for the long term and it’s nice to have in the portfolio ahead of uncertain times after the summer. HOLD

Rating change “HOLD” to “SELL 1/3”
Eli Lilly and Company (LLY – yield 1.4%) – Lilly is a phenomenal big pharma player with a fantastic pipeline and a well-run business. Those things are big winners longer term. In the near term, LLY has blown away it peers. The stock is up 57% YTD and 144% over the last two years. The overachieving stock had a huge run recently on the prospects of its Alzheimer’s drug. But that story won’t change for a long while as it will be submitted for approval near the end of the year. LLY tends to pull back and consolidate after a big run as well. For those reasons, we’ll take some money off the table for now. SELL 1/3

KKR & Co. Inc. (KKR – yield 0.9%) – Financial stocks have been hot and KKR has been hotter. Finance had been the best performing S&P 500 sector over the last month. KKR is up 60% YTD. The asset management business is booming and KKR is in the fastest growing segment of that business, alternative investments. The stock has been a phenomenal performer in recent years and there is no reason that performance shouldn’t continue. The last quarter was fantastic as the company took in a record amount of new assets. HOLD

Qualcomm Inc. (QCOM – yield 1.9%) – The chipmaker stock has been pulling back after the big bounce it got following its fabulous second-quarter earnings. The company is giving the market every reason to love the stock, but this late summer market just won’t bite. There is a good chance that after Labor Day when investors refocus 5G will be a bigger story in the market and QCOM will get going again. For now, it is still a good entry point for the stock if you don’t own it already. BUY

Spectrum Brands Holdings, Inc. (SPB – yield 2.2%) – This home essentials retailer has been slightly lower since being added to the portfolio earlier this month as the delta variant has hurt consumer confidence. But this is no ordinary retailer. Demand for home products is stronger with bad virus news. Plus, demand for home products is likely to remain strong after the pandemic stuff is long over. It’s still a good entry point for the stock if you don’t own it already. BUY

U.S. Bancorp (USB – yield 3.2%) – The bank recorded a very strong quarter as the economy continues to boom. But banks have been struggling as the falling 10-year rate negatively effects net interest income. Banks and USB have been casualties of the falling 10-year yield recently. But I believe there is a strong chance rates rise into the second half of the year. The bank’s other businesses are thriving, and a rising yield should get the stock moving again. HOLD

Valero Energy Corp. (VLO yield 6.0%) – This refiner is a high-leverage play on energy and the recovery. Earlier this year that was great. Lately, it’s been bad. Like Chevron, Valero’s real recovery will show in the second half of the year as it records full quarters of an open economy. I’m not sure how the headlines will play out in the weeks and months ahead. But a stock with sharply rising earnings selling at a cheap valuation with a high dividend will come back in vogue eventually. Patience should pay off with this one. HOLD

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 1.5%) – 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 4.9%) – 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 1.8%) – NEE has had a nice move higher since the end of June. The normally up-trending juggernaut has been knocked around with the fortunes of cyclical stocks this year. NEE got pulled down as cyclical stock rallied earlier this year. And lately, it has rallied while those stocks have struggled. Such a stark connection to the fortunes of cyclical stocks is likely temporary. NEE should also benefit from the growth of alternative energy and again be the highly desirable conservative play on the growth in that area. BUY

Xcel Energy (XEL – yield 2.7%) – It’s been a crummy year for this smaller alternative energy utility. It’s returned a mere 3.8% YTD. Somehow in this wild pandemic market investors forgot all about the growth in alternative energy. That’s likely because stocks in that sector had a huge run earlier and conventional energy stocks got hot. But the economy will normalize, and investors will again realize that XEL is a fantastic way for more conservative investors to play the growth in clean energy. BUY

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
8/24/21
Total ReturnCurrent YieldCDI OpinionPos. Size
AGNC Investment Corp. (AGNC)04-14-2117Monthly1.448.5%16-3%8.8%BUY1
Blackrock Enhanced Cap & Inc. (CII)07-13-2121Monthly1,125.3%213%5.2%BUY1
Enterprise Product Partners (EPD)02-25-1928Qtr.1.806.40%22-5%8.1%BUY1
ONEOK Inc. (OKE)05-12-2153Qtr.3.747.10%543%7.2%BUY1
Realty Income (O)11-11-2062Monthly2.814.5%7115%4.0%HOLD1
STAG Industrial (STAG)03-21-1824Monthly1.456.0%41104%3.5%HOLD1/2
Verizon Communications (VZ)02-12-2058Qtr.2.514.3%551%4.5%HOLD1
Current High Yield Tier Totals:5.7%23.6%5.5%
Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.206.7%12177%4.4%BUY2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.403.2%4848%3.0%BUY1
Brookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.045.0%5769%3.6%HOLD2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.165.7%9910%5.5%HOLD1
Digital Realty Trust (DLR)09-09-20147Qtr.4.643.2%15913%2.9%HOLD1
Eli Lily and Company (LLY)08-12-20152Qtr.3.402.2%26476%1.3%SELL 1/32/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.581.2%6538%0.9%HOLD1
Qualcomm (QCOM)11-26-1985Qtr.2.603.1%14478%1.9%BUY1/3
Spectrum Brands Holdings, Inc. (SPB)08-11-2181Qtr.1.682.1%79-3%2.2%BUY1
U.S. Bancorp (USB)12-09-2045Qtr.1.683.7%5827%3.3%HOLD1
Valero Energy Corp (VLO)06-26-1984Qtr.3.924.7%67-13%6.5%HOLD1/2
Current Dividend Growth Tier Totals:3.7%34.5%3.2%
Safe Income Tier
BS 2021 Corp Bond (BSCL)08-30-1721Monthly0.422.0%218%1.5%HOLD1/2
Invesco Preferred (PGX)04-01-1414Monthly0.745.3%1558%4.9%HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.543.5%85102%1.8%BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.835.9%68177%2.7%BUY2/3
Current Safe Income Tier Totals:4.2%86.3%2.7%