The stock market’s advance slowed a little this week, but the major indexes are still at all-time highs. Strangely enough, after declining for most of September, utilities have been one of the best-performing sectors over the past five days. Technology and real estate are also outperforming.
The yield on the 10-year treasury spiked over 2.4% on Friday, after Philadelphia Fed President Patrick Harker said he’d “penciled in” a December rate hike. Friday’s jobs report also revealed strong wage growth and a drop in the jobless rate to 4.2%. A drop in job creation caused by the hurricanes is expected to be offset over the next two months—hurricane-affected areas may even see a hiring surge. That’s driven the odds of a December rate hike over 90%, although yields pulled back a bit once the bond market reopened after the Columbus Day holiday.
I’m putting General Motors (GM) and PowerShares Preferred Portfolio (PGX) back on Buy today. That brings the total number of Buy-rated recommendations in our portfolio to 10, not including the four ETFs in our bond ladder.
HIGH YIELD TIER
BUY – General Motors (GM 45 – yield 3.4%) – GM’s rally has gone vertical; the stock is 12% higher since the start of this month, and up 24% since the beginning of September. I’m impressed with the momentum, even though the timing is a bit of a mystery. Earnings estimates haven’t moved in two months, and EPS are still expected to decline next year. Investors were excited by GM’s recent electric vehicle and autonomous technology announcements, though none were huge surprises. GM acquired a LIDAR technology company, will roll out two new all-electric cars in the next year and a half, and plans to offer at least 20 all-electric models by 2023. Regardless, from a technical standpoint, the reason for GM’s strength isn’t relevant but the strength is. The high-volume breakout to virgin territory is very bullish, and the stock’s next move will likely be up. So, I’ll put GM back on Buy for high-yield investors today; try to start new positions on pullbacks. The company will report third-quarter earnings on October 24.
Next ex-div date: December 4, 2017 est.
BUY – Pembina Pipeline (PBA 34 – yield 5.1%) – I put PBA back on Buy last week, but the pipeline stock has since begun another pullback, influenced by oil’s slide back under $50 per barrel. I still think the monthly dividend stock is a good medium-term holding for high yield investors, so I’ll keep it on Buy. Pembina will report third-quarter results on November 2 after the close.
Next ex-div date: October 24, 2017
HOLD – Welltower (HCN 68 – yield 5.1%) – Interest rates remain elevated. Friday’s employment report showed negative job creation in September due to the hurricanes, but wage growth was surprisingly strong and analysts are all but sure that the Fed will hike rates in December. Higher rates cause selloffs in REITs like Welltower, and HCN is 1.25% lower since our last update. That leaves the stock below support from May, but above its lows from the first quarter, when rates were significantly higher than they are now. We’ll hold at least until that level, around 65. Set your own loss limit in your portfolio.
Next ex-div date: November 3, 2017 est.
DIVIDEND GROWTH TIER
BUY – BB&T Corp (BBT 48 – yield 2.8%) – BB&T Corp is a regional bank offering a broad range of financial services in the south, the mid-Atlantic region, Texas and some of the mid-west. I put BBT back on Buy last week after the stock started to make up for its recent underperformance versus the rest of the financials. The stock is now up 8.5% over the past 30 days, thanks in large part to the surge in interest rates. BB&T will report third-quarter earnings on October 19 before the open. Analysts are expecting 6.8% EPS growth, to $0.78 from $0.73, and revenues of $2.84 billion, about the same as last year. Dividend growth investors can buy BBT on pullbacks for long-term gains and steady dividends.
Next ex-div date: November 8, 2017 est.
BUY – Broadridge Financial Solutions (BR 82 – yield 1.6%) – Broadridge is a tech company that provides information and services to financial companies. The stock is consolidating near 52-week highs. BR looks very healthy, and dividend growth investors who don’t own it can buy a little here.
Next ex-div date: December 12, 2017 est.
HOLD – Carnival (CCL 67 – yield 2.1%) – Our patience with Carnival was rewarded this week; the stock is 4.7% higher since our last update. Caribbean cruise demand is returning to pre-hurricane levels according to industry analysts. Hold.
Next ex-div date: November 21, 2017
BUY – CME Group (CME 137 – yield 1.9%) – CME Group, which owns options, commodity and other financial exchanges, is the latest addition to our portfolio. The stock has been acting well since we added it on October 2. CME announced Thursday that it will start offering weekly FX options that expire on Wednesdays (current weekly FX options expire on Fridays.) CME Group will announce third-quarter earnings on October 26 before the open. Dividend growth investors can buy now for steady growth, regular dividends and the annual special dividend.
Next ex-div date: December 7, 2017 est.
BUY – Cummins (CMI 173 – yield 2.5%) – Cummins makes heavy-duty engines for trucks, ships, mining equipment and more. CMI has followed through on its breakout past 170, consolidating around 172 for four days before pushing out to 173 yesterday. Cummins will announce third-quarter earnings on October 31. Dividend growth investors who don’t own CMI yet can buy a little here.
Next ex-div date: November 16, 2017
BUY – Wynn Resorts (WYNN 143 – yield 1.4%) – Wynn owns two casino resorts in Macau and two in Las Vegas, and is building the first major casino in the Boston area. The stock is pulling back this week, but remains near its highs. Wynn hasn’t announced a third-quarter earnings date yet, but estimates are rising.
Next ex-div date: November 7, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 217 – yield 2.2%) – 3M is a diversified provider of consumer and industrial technology and products. The company has paid dividends for 100 years. MMM hit a new 52-week high on Wednesday. The stock remains a long-term Buy, especially on pullbacks, for safe income and dividend growth investors.
Next ex-div date: November 15, 2017 est.
BUY – Consolidated Edison (ED 82 – yield 3.3%) – ConEd is a New York-area utility. The stock pulled back just over 4% in September as interest rates rose, found support around 80 at the end of the month, and is now rebounding. More interest rate-related volatility is likely ahead of the Fed’s December meeting, but this looks like a decent entry point for long-term investors who don’t own ED yet. Long-term income investors can buy a little here.
Next ex-div date: November 13, 2017 est.
HOLD – Ecolab (ECL 133 – yield 1.1%) – Ecolab provides cleaning, efficiency and sustainability technology and services to a wide variety of industries. A Dividend Aristocrat, the stock is a solid long-term buy for income investors. However, it’s lacking short-term momentum, and is currently rated Hold.
Next ex-div date: December 15, 2017 est.
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%)
BUY – Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.3%)
Next ex-div dates: all November 2, 2017 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – I’m putting PGX back on Buy today. The preferred share pulled back as interest rates spiked on Friday, providing a buying opportunity for investors who want to add a source of reliable monthly income to their portfolios. The ETF doesn’t have capital appreciation potential, but it trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share. I generally put the ETF back on Buy when it trades below 15 and offers a better margin of safety.
Next ex-div date: October 13, 2017 est.
HOLD – Xcel Energy (XEL 48 – yield 3.0%) – Xcel Energy is a Minnesota-based utility and one of the largest producers of wind power in the U.S. After declining about 4% in September, XEL is already bouncing back. I’d consider putting XEL back on Buy on a pullback to the stock’s 200-day, currently around 45. Long-term safe income investors who already own the stock can continue to Hold.
Next ex-div date: December 19, 2017 est.
Closing prices as of October 10, 2017.
