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Dividend Investor
Safe Income and Dividend Growth

December 1, 2021

The big news this week is the emergence of a new coronavirus strain in Africa. The news prompted a steep selloff last Friday and then again yesterday. This throws a wrench in the works.

Inflation Versus the Virus
The virus is back, again.

The big news this week is the emergence of a new coronavirus strain in Africa. The news prompted a steep selloff last Friday and then again yesterday. This throws a wrench in the works.

Little is known about this new Omicron strain. It has yet to be determined how easily it is to spread or how dangerous it is or isn’t. It could turn out to be worse than the delta strain that restrained the economy over the summer or it could be nothing or anything in between. The market is unsure how to react. Big rebounds followed both selloffs on Friday and Tuesday.

Not only does the new virus strain add a wildcard to the market, but it also directly counters the narrative that had been unfolding.

Inflation is gaining momentum as a force and a market theme. The Fed this week officially retired the “transitory” phrase because inflation is clearly a bigger problem than initially perceived. The Chairman also said the central bank could curtail its stimulus at a faster pace to fight inflation.

But a bad virus strain would counter inflation. More lockdowns and slower economic growth would squelch rising prices, at least to some degree. Since the virus news hit at the end of last week, the price per barrel of crude oil has fallen more than 10%. Other commodity prices have plummeted as well.

A slower economy and more virus trouble would also make the Fed less likely to pull back on stimulus in the near term. I’m not sure the virus spread would hurt the market much because it would also postpone two problems, inflation and Fed tightening.

The market is facing dueling risks that could pull things in different directions. That’s why it’s confused.

It’s impossible to know what will become of this latest virus strain at this point. We’ll have to wait and see how things unfold. In the meantime, we are reducing ratings on two energy stocks, Chevron (CVX) and Valero Energy (VLO), from a “BUY” to a “HOLD” until there is more clarity on the virus. Also, we have one “SELL”…

High Yield Tier
AGNC Investment Corp. (AGNC – yield 9.1%) – This floundering mortgage REIT dipped below the previous resistance level of around 16 per share during the Omicron virus selloffs. Treasury yields plummeted and most cyclical and financial stocks fell. But AGNC tends to recover quickly with the market. The yield is safe and there is a good chance the stock rebounds from the loses of the past couple of weeks. BUY

Blackrock Enhanced Capital and Income Fund (CII – yield 5.6%) – This covered call ETF tends to perform on par with the overall market. The market has been dicey this past week because of the new virus strain. But there is no reason to panic. We’ll see how it shakes out. Meanwhile, CII pays a great income. BUY

Compass Diversified (CODI – yield 5.0%) – Although it doesn’t move fast, this business development company has been consistently trending higher since the pandemic lows of 2020. Compass has had very strong earnings growth over the last year because of new acquisitions as well as the economic recovery. Small businesses tend to thrive disproportionately in a recovering economy. I expect the uptrend to continue. BUY

Enterprise Product Partners (EPD – yield 8.3%) – The performance of this midstream energy partnership continues to be disappointing. It still has decent returns for the year but it doesn’t compare to the fantastic performance of the other portfolio midstream company, ONEOK (OKE). ONEOK is growing faster because it operates strictly in the natural gas realm. But EPD should still have more upside potential than downside risk from here. And the sky-high 8.3% yield is very safe. BUY

ONEOK Inc. (OKE – yield 6.0%) – This has been one of the very best midstream energy stocks. It has vastly outperformed its peers. But it does still get bounced around with the energy sector in the near term. And the latest bounce has been lower as Omnicom fears are pushing cyclical stocks lower. We’ll see how this virus stuff plays out. But I still like OKE for the months and quarters ahead. HOLD

Realty Income (O – yield 4.2%) – This may be a slow-moving stock. But it holds up well in volatile markets like we have had over the past week. This is when it’s great to have a stock like O. It comes as advertised. I expect it to continue to be a great income stock that pays you every month while very slowly trending higher. HOLD

STAG Industrial (STAG – yield 3.3%) – While the market is busy freaking out over Omicron and the Fed, STAG is making new all-time highs. It was the only stock portfolio position that was actually up in the big down day yesterday. Business is good for the REIT and will likely stay that way whether the virus or inflation wins in the next few months. HOLD

Rating change “HOLD” to “SELL
Verizon Communications (VZ – yield 4.9%) – The stock has broken through downside resistance levels. Despite the disappointing performance of the stock, it was historically a good down-market performer. But it hasn’t been through the recent tumult. It now appears that higher revenues from 5G phones and additional wireless devices is probably years away. There are better opportunities out there right now and the portfolio is parting ways with the lackluster telecom giant. SELL

Dividend Growth Tier
AbbVie (ABBV – yield 4.9%) – Fantastic earnings recovered the stock from a selloff in late summer following the FDA announcement of a warning label for one of its most promising drugs. Aside from that dip and recovery, the stock has been knocking around in the same range since the spring. That’s not unusual for this stock. It tends to have a surge and go sideways for a while then repeat the process. But it has been trending unmistakably higher since the summer of 2019. I expect the longer-term uptrend to continue. BUY

Broadcom Inc. (AVGO – yield 2.6%) – This technology stalwart cooled off after going on a tear from early October until the middle of November. Recent action is partly a normal consolidation and partly because of recent weakness in the sector and the Omicron selloff. But business has been booming and I expect the stock to continue trending higher over the longer term. It’s also worth noting that Broadcom reports earnings in a little over a week. That could get the stock going again. BUY

Brookfield Infrastructure Partners (BIP – yield 3.6%) – This infrastructure partnership reported solid earnings and raised the dividend 5%. Then the infrastructure bill passing likely increased investor interest in the subsector. But Brookfield announce an equity offering and BIP pulled back over 6% from the recent high. New shares will dilute the existing share base. But the company has a proven ability to make up more than the difference in profitable investments. The stock has been slowly moving back higher. HOLD

Rating change “BUY” to “HOLD”
Chevron Corp. (CVX – yield 4.7%) – Energy stocks have taken a hit during the new virus scare as oil prices have plunged. But CVX is still very close to the 52-week high right now. CVX tends to be less volatile than the energy sector. Unless this new virus strain turns out to be a game-changer in the near term, energy prices are still likely to move higher and inflation will remain a problem. We’ll see what happens. But until there is more clarity on the virus, I will reduce CVX to a HOLD. HOLD

Eli Lilly and Company (LLY – yield 1.3%) – The biopharmaceutical giant bounces around a lot. It had a huge surge over the summer on the likelihood of an approval of its Alzheimer’s drug next year. It then pulled back 25% for no good reason. But it has shot back up since the beginning of October. It looks like it might be back on its way to the high, despite a dip recently. And of course, LLY is a great stock for the long term as well. HOLD

KKR & Co. Inc. (KKR – yield 0.8%) – This alternative investment asset manager has really cooled off. That was to be expected, which is why half the position was sold last month. KKR had run up 40% in a month on blow-out earnings. It has since pulled back 11% from the high. The stock has returned 60% since being added to the portfolio in March. Prospects still look bright for the stock, but it may have gotten ahead of itself in the near term. HOLD

Qualcomm Inc. (QCOM – yield 1.5%) – QCOM just looks like a stock that still wants to go higher. It has pulled back a little after the massive surge earlier this month. But the recent weakness has been externally driven. The tech sector sold off and then Omicron caused a selloff in the market. QCOM pulls back in sympathy but then rebounds strongly. It seems like the stock wants to continue higher if the external pressures abate. Business is still booming and the stock is still cheap. But we’ll see what happens in the near term. HOLD

Spectrum Brands Holdings, Inc. (SPB – yield 1.6%) –This stock pulled back almost 7% during the recent carnage, although it is moving higher today. There really isn’t any good reason for the pullback. It sells home products. If the virus gets bad and results in more lockdowns, sales will likely go higher. Inflation is a bigger worry. But the company seems to be handling it well. The stock got a bunch of upgrades and price target raises after earnings and guidance exceeded expectations. HOLD

U.S. Bancorp (USB – yield 3.2%) – The regional bank stock is really taking it on the chin lately. From the recent stock performance, you would never know that business at the bank is booming and will likely get even better as interest rates likely trend higher. It already had been floundering because of higher cost and still-low net interest income. Then it took another hit as cyclical stocks were hurt in the Omicron selloff. But the prognosis is still excellent for this bank and stock over the next year. HOLD

Rating change “BUY” to “HOLD”
Valero Energy Corp. (VLO – yield 5.6%) – This high leverage play on energy is going to exaggerate the moves in the overall sector. Lately, that’s been a bad thing as energy stocks are selling off because of the new virus scare and falling energy prices. There are still strong trends in place for continued high demand and rising energy prices unless the virus turns out to be bad and reverses these trends in the near term. As an act of caution, I’m reducing the rating to a HOLD until there is more clarity on this new virus strain. HOLD

Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – After falling during the pandemic, this preferred stock ETF has recovered. PGX 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 1.7%) – This large and well-known alternative energy utility was having a subpar year as investors looked away from alternative energy and safe stocks as conventional energy and cyclical stocks got hot. But it has quietly moved back to a new all-time high after soaring 15% since the middle of October. It should make up for lost time when things get back closer to normal after the pandemic recovery. BUY

Xcel Energy (XEL – yield 2.8%) – This alternative energy utility has lagged the performance of NEE. Although it has bounced off the recent lows, it is still in the lower part of the range for this year. And this year has not been great for utilities or alternative energy stocks. I expect this safe play on the growth in alternative energy to get hot again when things normalize next year. BUY

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
Total ReturnCurrent YieldCDI OpinionPos. Size
AGNC Investment Corp. (AGNC)04-14-2117Monthly1.449.10%15-7%9.1%BUY1
Blackrock Enhanced Cap & Inc. (CII)07-13-2121Monthly1,125.6%212%5.6%BUY1
Compass Diversified (CODI)10-13-2131Qtr.1.445.0%30-6%5.0%BUY1
Enterprise Product Partners (EPD)02-25-1928Qtr.1.808.30%21-6%8.3%BUY1
ONEOK Inc. (OKE)05-12-2153Qtr.3.746.00%5918%6.0%HOLD1
Realty Income (O)11-11-2062Monthly2.814.2%6716%4.2%HOLD1
STAG Industrial (STAG)03-21-1824Monthly1.453.3%44119%3.3%HOLD1/2
Verizon Communications (VZ)02-12-2058Qtr.2.515.1%50-7%4.9%SELL1
Current High Yield Tier Totals:5.4%28.0%5.3%
Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.204.8%11772%4.9%BUY2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.402.6%56425%2.6%BUY1
Brookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.043.6%5673%3.6%HOLD2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.164.7%11328%4.7%HOLD1
Eli Lily and Company (LLY)08-12-20152Qtr.3.401.3%25267%1.3%HOLD2/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.580.8%7559%0.8%HOLD1/2
Qualcomm (QCOM)11-26-1985Qtr.2.601.5%179124%1.5%HOLD1/3
Spectrum Brands Holdings, Inc. (SPB)08-11-2181Qtr.1.681.6%10424%1.6%HOLD1
U.S. Bancorp (USB)12-09-2045Qtr.1.683.2%5625%3.2%HOLD1
Valero Energy Corp (VLO)06-26-1984Qtr.3.925.7%68-95.6%HOLD1/2
Current Dividend Growth Tier Totals:3.0%40.3%3.0%
Safe Income Tier
Invesco Preferred (PGX)04-01-1414Monthly0.744.9%1554%4.9%HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.541.7%89110%1.7%BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.832.8%65160%2.8%BUY2/3
Current Safe Income Tier Totals:3.1%108.0%3.1%

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