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Dividend Investor
Safe Income and Dividend Growth

January 5, 2022

It’s a new year, and a new attitude. Investors tend to sober up after weeks of holiday slacking and refocus on the market. What are they saying?

2022 Likes Energy and Finance.
It’s a new year, and a new attitude. Investors tend to sober up after weeks of holiday slacking and refocus on the market. What are they saying?

Although the year is in its infancy, the message at this very early stage is loud and clear. Energy and financial stocks are the most desirable. In just two and a half days, the financial sector of the S&P 500 is up over 6%. Energy stocks are up more than 10%.

Of course, you can’t judge the year on a couple of days. But it’s interesting that investors are coming right out of the gate so high on these cyclical sectors.

Part of the reason is what I mentioned last week. These sectors were pulled back by the virus hysteria a couple of weeks ago. The panic has faded. This virus strain is perceived at this point as unlikely to cause major economic disruptions. The impact over the course of the year will be even less.

The current market concerns of inflation and a tightening Fed will long endure the temporary virus impact. In a year that is likely to post far lower returns than we’ve seen over the past year or two, companies that should benefit from these prominent issues should do well, especially after having gotten cheaper during the recent virus scare.

Oil prices are on the rise again, back near 80 per barrel. And there is no real reason at this point why prices would go down. Supply is still tight, and demand is strong with no end in sight. Prices may continue to go higher. At the same time, interest rates are moving higher amidst persistent inflation, a tightening Fed, and a still-strong economy.

There could more turbulence in the weeks ahead as the virus runs its course. But portfolio positions Valero Energy (VLO), Chevron (CVX), and Enterprise Product Partners (EPD) as well as U.S. Bancorp (USB) and Visa (V) have been red hot and may have further to run on this recent surge.

High Yield Tier
AGNC Investment Corp. (AGNC – yield 9.3%) – Things are looking better for this mortgage REIT. It has stabilized in the mid-15 per share range after weakness during the virus panic of a couple of weeks ago. A flattening yield curve has put downward pressure on the price in recent months. However, inflation, Fed tightening, and a continuing solid economy should pressure rates higher over the next few quarters and the price should benefit. Meanwhile, that sky-high yield is safe. BUY

Blackrock Enhanced Capital and Income Fund (CII – yield 5.4%) – This covered call ETF is a good place to be looking ahead to a more choppy and sideways market in the new year. It provides a higher level of income at the expense of capital appreciation potential. That should be a good trade. Plus, the more defensive nature and high dividend should be attractive to investors going forward. BUY

Compass Diversified (CODI – yield 4.7%) – This superstar Business Development Company (BDC) has been going sideways in a bouncy fashion for months. CODI took a hit during the volatility over the virus but has not recovered as strongly as other cyclical stocks. Smaller companies are more vulnerable to slower growth and BDCs are more exotic securities that investors don’t turn to first during a rotation back into cyclical companies. But it should thrive in the new year. BUY

Enterprise Product Partners (EPD – yield 7.8%) – This undervalued and underappreciated midstream energy giant is finally coming alive again. The recent rally in energy stocks is taking EPD with it. The biggest upward move since the fall is underway. EPD is up over 10% in just the last couple of weeks, and it looks poised to move higher in the days and weeks ahead. It’s about time. The move is more than justified. BUY

ONEOK Inc. (OKE – yield 6.2%) – This better-performing midstream energy stock has also been moving higher over the last few weeks, although not as much as EPD yet. The stock returned 65% in 2021 and has less ground to make up. That said, OKE is still priced below the pre-pandemic high despite higher earnings and a great prognosis going forward. I expect more good things from this natural gas infrastructure giant in the year ahead. BUY

Realty Income (O – yield 4.1%) – During the recent cyclical rally, this legendary income stock has quietly made a new 52-week high. It tends to rally with stronger retail stocks as virus fears abate. But O is still well below the pre-pandemic high for no good reason. I like the way the stock is situated going forward as earnings are growing at a better than average clip because of the recent acquisition, and investors should gravitate toward safer dividend stock in a choppier 2022. HOLD

STAG Industrial (STAG – yield 3.1%) – This industrial REIT has been a great performer in just about all variations of recent markets. It’s a cyclical REIT but it is still a relatively defensive play and it returned 60% in 2021. The industrial properties are in high demand and short supply and STAG is a great way to get a strong monthly income without sacrificing growth of principle. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.2%) – It’s another new high for this biopharmaceutical giant. Recent returns have been sensational. ABBV is up about 20% since the beginning of December. Fantastic earnings recovered the stock from a selloff in late summer over the FDA announcement of a warning label for one of its most promising drugs. The stock still sells at a very cheap valuation and might have more to go on this run. It has returned over 100% since being added to the portfolio as the long-term story is playing out. HOLD

Broadcom Inc. (AVGO – yield 2.5%) – This legendary technology player has been hot stuff since the beginning of October. It’s up over 40% since then. It still has strong momentum, and the rise should continue, despite a slight dip the past couple of days. Chip shortages are continuing, and the news has dented semiconductor stocks. But Broadcom has handled the chip shortage remarkably well so far and should continue to do so. BUY

Brookfield Infrastructure Partners (BIP – yield 3.4%) – This infrastructure partnership is getting the lead out. It just made a new all-time high on Monday and is still within bad-breath distance of that high right now. Recent patterns suggest BIP will continue to move higher for a while before consolidating before the next move higher. It is in a longer-term uptrend and is worth holding through the gyrations, especially with a solid distribution payout. The defensive business and high yield should help BIP perform well on a relative basis in a more sideways new year. HOLD

Chevron Corp. (CVX – yield 4.5%) – It’s a new 52-week high! CVX had gone mostly sideways for a couple of months while the energy sector consolidated after a fall surge. But it has broken out with the latest cyclical and energy stock rally. Oil prices are rising with no end in sight. Demand is strong. Good volume at high prices will surely juice profits for this energy giant. Despite the terrific environment for energy stocks, CVX is still selling below pre-pandemic levels. It should have further to run. HOLD

Eli Lilly and Company (LLY – yield 1.5%) – The big pharma company stock has been bouncing around in the higher range since soaring last summer. It actually made a new high recently after the company raised revenue and profit forecasts for 2021 and 2022. Also, there remains a strong probability of approval this year of a new Alzheimer’s drug that could be a mega blockbuster. HOLD

KKR & Co. Inc. (KKR – yield 0.8%) – The stock has been moving higher with the rally in financial stocks and had broken the recent downtrend, but it’s down over 4% today. The likely reason is that a key executive announced leaving the firm. But these things happen, and I consider this recent downdraft to be a temporary situation. Business is still booming, and the environment should be positive for financial stocks in the quarters ahead. HOLD

Qualcomm Inc. (QCOM – yield 1.5%) – What technology sector consolidation? As I mentioned, the volatility in technology didn’t pull QCOM down after the recent surge. It just stopped it from going higher, temporarily. But QCOM has soared to within pennies of the all-time high in this morning’s trading. The company is benefiting mightily from 5G, and longer-term prospects are hot as well. Qualcomm raised guidance and got a slew of analyst upgrades in the last quarter. I expect it to continue moving higher in the months ahead. HOLD

Spectrum Brands Holdings, Inc. (SPB – yield 1.7%) – This stock pulled back recently along with retail stocks amidst the recent virus worries, but it has been moving higher again over the past couple of weeks. There really wasn’t a good reason for the pullback. It sells home products. If the virus gets bad and results in more lockdowns, sales will likely go higher. But it’s bouncing back with the rest of the sector. HOLD

U.S. Bancorp (USB – yield 3.2%) – The stock has done nothing since the spring but it has been rallying along with the financial sector over the past couple of weeks. The ten-year rate has been moving higher in recent weeks. The pressures of inflation and a strong economy combined with the Fed tapering is likely to put upward pressure on rates in the months ahead. That missing piece of the puzzle should drive the stock to new highs and beyond. HOLD

Valero Energy Corp. (VLO – yield 5.5%) – This refiner stock is a high-leverage play on the energy sector. It exaggerates the movements of the overall sector. It had fallen a lot more since the sector consolidated over the past couple of months. But now that the sector has gotten hot again, VLO is up a lot more. It has rallied over 15% in just the last two weeks. VLO may be on its way to eclipsing the October high and perhaps beyond. We’ll see how far this latest move takes it. The stock is still cheap ahead of likely boom times for the refining business in the quarters ahead. HOLD

Visa Inc. (V – yield 0.7%) – This company makes money every time its cards are swiped. And its cards comprise about a 50% share of all cards issued worldwide. It’s one of the best financial stocks to own. V has been hot stuff since hitting recent lows last month. The future is setting up very well for Visa. The global economy should bounce back next year. Travel will return. And that will be icing on the cake because U.S. business is already booming. It also helps that the financial sector is getting hot. BUY

Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – After falling during the pandemic, this preferred stock ETF has recovered. 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 1.7%) – This combination regulated and alternative energy utility has been off to the races over the past three months with a nice 18% upside move. It had been having a subpar year and conventional energy stocks got hot. But recent performance is more in line with the stock’s expected behavior. NEE is benefiting from a flight to safety. Longer term, it should make up for lost time when alternative energy stocks come back into vogue. BUY

Xcel Energy (XEL – yield 2.7%) – This smaller alternative energy utility has been mimicking the moves of NEE but lagging them. But the stock has been trending higher since September and should have further to go. It’s still well below the high of late 2020 for no good reason. XEL is still a great way for conservative investors to play the growth in alternative energy. 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%16-4%9.3%BUY1
Blackrock Enhanced Cap & Inc. (CII)07-13-2121Monthly1,125.6%218%5.4%BUY1
Compass Diversified (CODI)10-13-2131Qtr.1.445.0%30-3%4.7%BUY1
Enterprise Product Partners (EPD)02-25-1928Qtr.1.808.30%231%7.8%BUY1
ONEOK Inc. (OKE)05-12-2153Qtr.3.746.00%6221%6.2%BUY1
Realty Income (O)11-11-2062Monthly2.814.2%7224%4.1%HOLD1
STAG Industrial (STAG)03-21-1824Monthly1.453.3%46133%3.1%HOLD1/2
Current High Yield Tier Totals:5.5%44.8%5.3%

Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.204.8%137102%4.2%HOLD2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.402.6%59053%2.5%BUY1
Brookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.043.6%6185%3.4%HOLD2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.164.7%11838%4.5%HOLD1
Eli Lily and Company (LLY)08-12-20152Qtr.3.401.3%26680%1.5%HOLD2/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.580.8%7159%0.8%HOLD1/2
Qualcomm (QCOM)11-26-1985Qtr.2.601.5%184133%1.5%HOLD1/3
Spectrum Brands Holdings, Inc. (SPB)08-11-2181Qtr.1.681.6%9928%1.7%HOLD1
U.S. Bancorp (USB)12-09-2045Qtr.1.683.2%5933%3.2%HOLD1
Valero Energy Corp (VLO)06-26-1984Qtr.3.925.7%796%5.5%HOLD1/2
Visa Inc. (V)12-08-21209Qtr.1.500.7%2156%0.7%BUY1
Current Dividend Growth Tier Totals:2.8%40.3%2.7%

Safe Income Tier
Invesco Preferred (PGX)04-01-1414Monthly0.744.9%1556%4.9%HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.541.7%91120%1.7%BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.832.8%70181%2.7%BUY2/3
Current Safe Income Tier Totals:3.1%119.0%3.1%

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