A Glorious Short Summer
Oh no. The summer is over. Summer used to last forever in youth. Now, it’s like a long weekend. Although it went by way too fast, it’s been a glorious summer in the market.
The S&P 500 is up 8% since Memorial Day. And the index is now up over 20% so far in 2021. August was the seventh consecutive month of gains for the market. Now, we head into Labor Day.
As I mentioned in past updates, the market often gets cranky after the summer. That doesn’t mean it will this year. It’s just a possibility to consider after such consistently strong performance for a long time. But even if the market does get choppy in September, it will present a buying opportunity.
Things are still very good. The economy is booming. Interest rates are low. Earnings have been terrific. All those good things are outweighing concerns about the delta variant and its negative affect on growth, for now.
Sure, investors could get spooked about the virus spread or something else for a while. But when fear wanes, and it always does, investors realize that there is no place else but stocks to fetch a decent return. That fact adds support to a market with other things going for it as well.
We’ll see what happens after the Labor Day. In the meantime, enjoy the rest of the summer.
High Yield Tier
AGNC Investment Corp. (AGNC – yield 8.8%) – After falling from the highs in June after a relentless and steady climb for more than a year, the mortgage REIT seems to have found a bottom. It fell from a high of almost 19 per share to under 16 but has recently been steadily over 16. The dividend is safe. The fall is likely over. And there is a good chance the stock continues to trend higher along with the ten-year rate. 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. Things are good right now, but we’ll see what the market does after Labor Day. BUY
Enterprise Product Partners (EPD – yield 8.1%) – It’s a high yield. And the payout is rock solid. But this stock just can’t get any love. It couldn’t score in a Geisha house. But the fundamental story is terrific. Earnings should be stellar in the second half of the year as business continues to improve in the full recovery. While the market is at all-time highs, EPD is still dirt-cheap and below the pre-pandemic price despite higher earnings. The market should figure it out eventually. BUY
ONEOK Inc. (OKE – yield 7.2%) – This midstream energy company is a similar story to EPD. But earnings are better. Business is strong and getting even stronger. And OKE moves a lot faster when the attitude toward energy stocks improves. Things should get shaken up in the market after the summer. That’s a good thing when you’re in the most unloved sector. Hopefully, this will get moving again. BUY
Realty Income (O – yield 3.9%) – This is what we signed up for. O is behaving just like a good dividend stock should. It’s been forging slowly higher all summer. It’s at a new post-pandemic high. But nobody seems to notice because it moves at a snail’s pace. Yet, the stock is still well below the pre-pandemic price despite much higher earnings and better prospects. HOLD
STAG Industrial (STAG – yield 3.4%) – This industrial REIT is behaving like a good dividend stock that also happens to be highly in favor. Its industrial and e-commerce properties are in high demand and short supply. The booming economy makes these more cyclical properties even more desirable in the near term. STAG keeps on forging to new all-time highs with no sign of stopping. HOLD
Verizon Communications (VZ – yield 4.6%) – The wireless giant stock languishes around the same 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 4.6%) – The stock is down 7% today. The reason, as far as I can decipher so far, is the submission of a competing biologic cancer drug for FDA approval by an American and Chinese firm. Obviously, the market fears the new drug, if approved, will cut into AbbVie’s business. I will keep you updated as more information becomes available. But this is the life of a pharmaceutical stock. There is good and bad news on drugs and competitors all the time. There are typically several big up and down days every year on news like this. But I still love the AbbVie story. BUY
Broadcom Inc. (AVGO – yield 2.9%) – This is a cheap technology stock with a solid dividend and great prospects. About 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. The stock also just made a new all-time high and could be on the verge of a breakout. BUY
Brookfield Infrastructure Partners (BIP – yield 3.6%) – This infrastructure partnership is another dividend all-star that is slowly slogging to a new all-time high. But the ascent is slow and choppy. BIP is only up 3% since the middle of April. It is completing the Inter Pipeline merger this quarter and earnings will get an immediate boost. Hopefully, this stock can get a move on as infrastructure gets more headlines with the bill Congress likely to pass. 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 is forging to a new all-time high. DLR is up 10% in the past month and over 30% in the last six months. It has momentum and it’s also a great down-market stock with a low beta. It’s a great holding ahead of an unpredictable September. HOLD
Eli Lilly and Company (LLY – yield 1.3%) – Lilly is a phenomenal big-pharma player with a fantastic pipeline and a well-run business with great longer-term prospects. But the stock has had a huge run this year and in the past few months. Last week we took profits on one third of the position. The stock tends to pull back and consolidate after a huge run. Plus, the Alzheimer’s drug news that prompted the latest surge probably won’t have any new developments for several months. It seemed like a good time to secure some profit. HOLD
KKR & Co. Inc. (KKR – yield 0.9%) – KKR is a superstar financial stock at a very good time for the sector amidst the full recovery. It’s in the fastest growing segment of the booming asset management business. The track record blows away the competition and there is every reason to believe the outperformance will continue in the months and quarters ahead. HOLD
Qualcomm Inc. (QCOM – yield 1.9%) – Like AVGO, this chipmaker stock is cheap while business is booming. The last two earnings reports have been spectacular as royalties pour in from 5G phones sales. And the good times should continue for several more quarters. 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 2.1%) – This home essentials retailer has been slightly lower since being added to the portfolio last 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 main thing holding this bank stock back is the flattening yield curve. Business in booming otherwise and should stay very strong for a while. But the yield curve is likely to improve in the months ahead. It is likely the benchmark ten-year yield has moved too low for a booming economy and persistent inflation. I’m looking for another surge before the end of the year. In the meantime, it pays a 3.2% yield. HOLD
Valero Energy Corp. (VLO – yield 6.0%) – This refiner was suffering along with the rest of the energy sector as the delta variant threatens growth and energy prices. Recently, the refiner has also been hit from fallout from hurricane Ida. There will likely be shutdowns and a disruption of business in the near term. But I believe the good story remains intact and this latest weakness is a buying opportunity of you don’t own the stock already. HOLD
Safe Income Tier
Rating change “HOLD” to “SELL”
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 1.5%) – These short-term bonds mature at the end of this year. Ahead of maturity, the bonds are losing any premium they had and the price has been slowly eroding over the past few months. Let’s take the money off the table and look for something more sustainable in the future. SELL
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%) – After months of subpar performance, this stock has gotten hot. It’s up 15% since the beginning of July. This normally upward trending juggernaut was having a bad year until recently. It got dissed in the euphoria of the cyclical stock rally and limped along for months. NEE is a highly desirable way for conservative investors to play growth in alternative energy. It wasn’t going to stay down for long. It appears to be reawakening. But we’ll see what a cranky post Labor Day market will do to this uptrend. BUY
Xcel Energy (XEL – yield 2.7%) – It’s been choppy for this smaller alternative-energy utility. It’s only up about 4% YTD. Investors forgot all about the growth in alternative energy in this crazy pandemic market. That’s likely because stocks in that sector had a huge run earlier and conventional energy stocks got hot. But thing will return to normal, 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 Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on 9/1/21 | Total Return | Current Yield | CDI Opinion | Pos. Size |
| AGNC Investment Corp. (AGNC) | 04-14-21 | 17 | Monthly | 1.44 | 8.5% | 16 | -3% | 8.8% | BUY | 1 |
| Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.3% | 22 | 4% | 5.2% | BUY | 1 |
| Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 6.40% | 22 | -4% | 8.1% | BUY | 1 |
| ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 7.10% | 52 | 2% | 7.2% | BUY | 1 |
| Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.5% | 73 | 18% | 3.9% | HOLD | 1 |
| STAG Industrial (STAG) | 03-21-18 | 24 | Monthly | 1.45 | 6.0% | 43 | 111% | 3.4% | HOLD | 1/2 |
| Verizon Communications (VZ) | 02-12-20 | 58 | Qtr. | 2.51 | 4.3% | 55 | 1% | 4.6% | HOLD | 1 |
| Current High Yield Tier Totals: | 5.7% | 25.6% | 5.4% | |||||||
| Dividend Growth Tier | ||||||||||
| AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 6.7% | 112 | 78% | 4.6% | BUY | 2/3 |
| Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 3.2% | 495 | 12% | 2.9% | BUY | 1 |
| Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 5.0% | 57 | 70% | 3.6% | HOLD | 2/3 |
| Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 5.7% | 96 | 9% | 5.5% | HOLD | 1 |
| Digital Realty Trust (DLR) | 09-09-20 | 147 | Qtr. | 4.64 | 3.2% | 167 | 15% | 2.9% | HOLD | 1 |
| Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 2.2% | 257 | 73% | 1.3% | HOLD | 2/3 |
| KKR & Co. Inc. (KKR) | 03-09-21 | 48 | Qtr. | 0.58 | 1.2% | 65 | 37% | 0.9% | HOLD | 1 |
| Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 3.1% | 148 | 81% | 1.9% | BUY | 1/3 |
| Spectrum Brands Holdings, Inc. (SPB) | 08-11-21 | 81 | Qtr. | 1.68 | 2.1% | 79 | -4% | 2.1% | BUY | 1 |
| U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.7% | 56 | 28% | 3.2% | HOLD | 1 |
| Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 4.7% | 64 | -11% | 6.0% | HOLD | 1/2 |
| Current Dividend Growth Tier Totals: | 3.7% | 35.3% | 3.2% | |||||||
| Safe Income Tier | ||||||||||
| BS 2021 Corp Bond (BSCL) | 08-30-17 | 21 | Monthly | 0.42 | 2.0% | 21 | 8% | 1.5% | SELL | 1/2 |
| Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 5.3% | 15 | 58% | 4.9% | HOLD | 1/2 |
| NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 3.5% | 86 | 103% | 1.8% | BUY | 1/2 |
| Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 5.9% | 70 | 178% | 2.7% | BUY | 2/3 |
| Current Safe Income Tier Totals: | 4.2% | 86.8% | 2.7% | |||||||
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