The S&P 500 and Dow finally joined the Nasdaq at new highs this week, although they continue to underperform the tech-oriented index. Despite this divergence, most signals continue to point to further gains for the stock market in the months ahead.
Elsewhere, jobs numbers beat expectations on Friday and the unemployment rate fell to its lowest level since 2001. However, consumer spending, construction spending and manufacturing data all missed estimates. Oil prices also remain weak, as do commodity prices.
In today’s update, I report first-quarter earnings results from Pembina Pipeline (PBA), Prudential (PRU) and Automatic Data Processing (ADP). Pembina, which beat estimates, is buyable here for high yield investors. Still to come this month are reports from GameStop (GME) and Home Depot (HD), both rated Buy as well. I am moving PowerShares Preferred Portfolio (PGX) back to Hold today; if you want to add to your position, wait until the ETF trades below 15 again.
Lastly, thank you to subscriber Geoffrey Cohen for his recent suggestions to improve Cabot Dividend Investor. As always, I encourage all members to reach out to me at chloe@cabotwealth.com with suggestions or questions. You can also follow me on Twitter @ChloeAtCabot for market commentary between updates.
HIGH YIELD TIER
BUY – GameStop (GME 25 – yield 6.1%) – GME closed at its highest level since before its March gap-down yesterday. It’s still high risk, but for value-oriented and yield-focused investors, GME’s 6.2% yield and P/E of 7.1 offer an attractive risk-reward tradeoff. The company is transforming from a chain of video game stores to a multi-channel technology and collectibles retailer. The new businesses are doing well, but haven’t gotten large enough to offset rapidly falling video game sales yet. If all goes according to plan, revenues and earnings will start to rebound next year. GameStop will report first-quarter earnings on May 25 after the market closes. Analysts are expecting EPS of $0.51 and revenue of $1.95 billion, down from $0.66 and $1.97 in the same quarter last year.
Next ex-div date: June 6, 2017 est.
HOLD – General Motors (GM 34 – yield 4.4%) – GM has recovered from last week’s gap down, which was triggered by the release of weak April auto sales numbers. The stock is back at 34 now, where it was trading before the report. If it runs into resistance here and heads South again, I would become concerned about the stock returning to its lower trading range between 30 and 33. However, if the stock can move back above 34, we’ll hang on. On the bright side, 14 analysts have increased their current year EPS estimates in the past month.
Next ex-div date: June 7, 2017
BUY – Pembina Pipeline (PBA 32 – yield 4.5%) – Pembina, a Canadian pipeline company, beat earnings estimates by a wide margin last week, and the stock is up 4% since the announcement. EPS of $0.49 beat the average estimate by 13 cents, and revenue rose 46% year-over-year, beating estimates by $460 million. The stock could still see some pressure from weakness in oil prices, as well as Pembina’s pending acquisition of Veresen, another Canadian pipeline company. However, Pembina is expected to deliver strong earnings growth this year and next, and eight analysts have raised their 2017 estimates in the past month. Risk-tolerant high yield investors can nibble here.
Next ex-div date: May 23, 2017
HOLD – Verizon (VZ 46 – yield 5.0%) – VZ’s support at 46 held last week, and Friday’s market rally helped the stock bounce slightly. I’m not going to put VZ back on Buy just yet, but investors who own it can hold on for the high yield.
Next ex-div date: July 5, 2017 est.
DIVIDEND GROWTH TIER
BUY – Carnival (CCL 63 – yield 2.2%) – CCL traded flat this week, which is impressive considering that much of last week’s gains were thanks to acquisition rumors (rumor-fueled rallies often dissipate quickly if the rumors aren’t confirmed.) Eventually, CCL will probably pull back to its 50-day moving average (or at least pause long enough for it to catch up) but I still think the stock is a great long-term Buy. Cruise demand is strong and analyst estimates are moving up. Buy on pullbacks.
Next ex-div date: May 24, 2017
BUY – Cummins (CMI 159 – yield 2.6%) – CMI retraced about half of its post-earnings gap up before finding support at 155 and heading north again. The stock is down about 1.8% over the past five days, but up 4.5% since the beginning of the month. CMI remains a great long-term buy, current year EPS estimates have risen by 12% over the past week. Dividend growth investors who haven’t bought yet can take advantage of this pullback to do so.
Next ex-div date: May 17, 2017
HOLD – Prudential Financial (PRU 108 – yield 2.8%) – PRU gapped up to 110 after reporting first-quarter results after the close last Wednesday, but has given back all of the gains, and is back at 108. EPS of $2.79 came in 6% above estimates, but 2017 estimates have moved up less than 1% since the announcement. That suggests that analysts think the beat was mostly attributable to one-time factors. I’ll keep PRU on Hold.
Next ex-div date: May 19, 2017
BUY – Wynn Resorts (WYNN 123 – yield 1.6%) – China announced new requirements for ATM withdrawals in Macau on Monday. Users of Chinese-issued ATM cards will now have to show ID and undergo a facial recognition scan to withdraw money, measures aimed at staunching the flow of money out of China. Macau casino stocks all pulled back, and WYNN initially fell nearly 5%. However, buyers stepped in yesterday, with the stock still above its pre-earnings gap-up level. WYNN is now down less than 2% since our last update. Risk-tolerant dividend growth and total return investors who don’t own WYNN yet can use this pullback to start positions.
Next ex-div date: August 9, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 197 – yield 2.4%) – MMM tacked on about 1% over the past five trading days, hitting a new all-time high on Friday. After the company’s estimate-beating earnings report two weeks ago, 2017 EPS estimates have moved up about 3%. Hundred-year dividend payer 3M makes products and technology used in industrial, health care, consumer and safety applications. Investors interested in long-term capital appreciation and safe income can buy MMM here.
Next ex-div date: May 17, 2017
HOLD – Automatic Data Processing (ADP 96 – yield 2.4%) – ADP is 7% lower over the past five trading days, after reporting earnings last Wednesday. As I wrote in Thursday’s Special Bulletin, ADP’s EPS beat estimates by a large margin, but revenues fell short of expectations. The payroll processor is having trouble signing new customers, and while management has maintained earnings growth by improving margins and increasing revenue per customer, Wall Street clearly wants to see customer growth as well. ADP is now trading just above its 200-day moving average, and exhibiting higher-than-usual volatility. I believe the stock has firm support at 95, so we’ll Hold for now.
Next ex-div date: June 7, 2017
HOLD – Consolidated Edison (ED 79 – yield 3.5%) – ED is still trading just under 80 after reporting solid earnings last week. EPS of $1.27 beat the analyst consensus by 7%. Revenue rose 2.2% year-over-year, to $3.23 billion, beating estimates by a hair. Hold.
Next ex-div date: May 15, 2017
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.1%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.0%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 25 – yield 4.8%)
These four funds make up our bond ladder, a conservative strategy for owning fixed income that’s particularly good at preserving capital when interest rates are rising. Each ETF will mature at the end of the year in the fund’s name, and Guggenheim will distribute the net asset value (NAV) of the fund to shareholders at that point—just like getting your principal back when a bond matures. Because of this maturity feature, these bond funds don’t lose value when interest rates rise, like traditional bond funds. At the end of each year, we’ll sell that maturing fund and reinvest the funds into a new longest-dated ETF to preserve the bond ladder. Note that the last letter in each of Guggenheim’s ETFs corresponds to the maturity year, so if you’re constructing a four-year ladder starting in 2017, your funds should end in H, I, J and K, whether you’re using high yield or investment grade funds.
Next ex-div dates: all June 1, 2017 est.
BUY – Home Depot (HD 158 – yield 2.3%) – HD hit another all-time high yesterday. The home improvement retailer will report first-quarter results on May 16 before the open. Analysts have bumped their estimates up slightly this week and now expect EPS to hit $1.61, up 11.8% from $1.44 in the same quarter last year. Revenues are expected to rise 4.1%, to $23.68 billion. Try to buy on pullbacks.
Next ex-div date: June 6, 2017 est.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – I’m putting PGX on Hold today, since the fund is now trading north of 15. The preferred share ETF trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share. It’s a good portfolio component for investors looking to add reliable monthly income (without capital appreciation) to their portfolio.
Next ex-div date: May 15, 2017 est.
HOLD – Xcel Energy (XEL 45 – yield 3.2%) – XEL continues to consolidate just under 52-week highs; the stock’s 50-day moving average is just catching up. XEL is a Hold for its reliable low-single digit earnings growth and consistent dividend payments.
Next ex-div date: June 20, 2017 est.
Closing prices as of 11:30 AM ET on May 10, 2017
