With only four low-volume trading days elapsed since our January issue was published, there’s not much new to report from the markets.The exception is the interest rate front. Inflation expectations continue to tick higher, fueled by reports of employee shortages and still-strong economic data. That led to further declines in utilities and real estate stocks over the past week, and both sectors could continue to underperform for some time. In response, we’re selling half of our shares in Welltower (HCN) today, cutting our loss at 15%. We’ll hold the rest for now, see below for details.
Finally, I wish you all an excellent start to the new year. Thank you for being a Cabot Dividend Investor subscriber.
HIGH YIELD TIER
BUY – General Motors (GM 42 – yield 3.6%) – GM continues to chop sideways in a two-and-a-half-month-long consolidation range, with support at 41. Anywhere in the low 40s looks like a decent Buy point; the stock is likely to remain between 41 and 47 for the time being. GM is increasingly seen as a play on the future of mobility, as the company invests heavily in self-driving and electric cars.
Next ex-div date: March 7, 2018 est.
BUY – ONEOK (OKE 53 – yield 5.6%) – Energy stocks have beat the market since our last update, rising nearly 5% over the past five days, while the S&P 500 declined slightly. OKE is along for the ride, and is heading back to the middle of its trading range. OKE is range-bound and can be sensitive to industry news, but the stock’s nearly 6% yield makes it an attractive option for risk-tolerant high yield investors. The company is a large U.S. natural gas and natural gas liquids pipeline operator that has increased its dividend by an average of 18% per year since 2012.
Next ex-div date: February 5, 2018 est.
BUY – Pembina Pipeline (PBA 36 – yield 4.8%) – Supported by the energy stock rally of the past five days, PBA is once again approaching its all-time high from early November. High yield investors looking to add monthly income to their portfolio can buy a little here. Pembina is a Canadian company (it pays monthly dividends in Canadian dollars) with an extensive network of oil and gas processing and transportation infrastructure. The company has been growing steadily through acquisitions and capital investment and analysts expect EPS to grow by double-digits this year and next.
Next ex-div date: December 28, 2017
SELL HALF – Welltower (HCN 63 – yield 5.5%) – Welltower is a health care REIT, or real estate investment trust. REITs took a nose-dive last week, with health care REITs like Welltower seeing some of the worst selling. The tax bill is actually expected to be good news for REIT investors, so the selloff is likely related to higher inflation expectations. Higher interest rates raise borrowing costs for REITs, while also making the high-yield securities less attractive to investors. The selloff caused HCN to drop definitively through support at 65, bringing our loss to 15%. The stock’s next technical support level is at 60, though it’s not highly significant. Given the lack of technical support, and the recent deterioration of 2018 earnings growth expectations, we’re going to sell half our Welltower shares at today’s average price. If the stock rebounds quickly, we’ll hang on to the rest of our shares; if it continues to decline, we’ll move on to other opportunities.
Next ex-div date: February 2, 2018 est.
DIVIDEND GROWTH TIER
BUY – American Express (AXP 99 – yield 1.4%) – American Express was added to our portfolio at the stock’s average price of 98.78 on Thursday. Analysts expect the credit card company to deliver 4% revenue growth this year and 6% growth next year. Earnings growth is also accelerating; analysts expect EPS to rise 4% this year and 11% next year. The company has paid dividends since 1977 and has kept the payout steady through numerous financial panics and times of economic turmoil, earning the stock a perfect Dividend Safety Rating of 10 out of 10. The company’s history of dividend growth is shorter but American Express has increased the payout by an average of 12% in each of the past five years, earning AXP a Dividend Growth Rating of 6.9 out of 10. Technically, AXP is at all-time highs and in a steady uptrend backed by high and rising growth expectations. Investors who like dividends and growth can buy some here.
Next ex-div date: January 4, 2018
BUY – BB&T Corp (BBT 50 – yield 2.6%) – BBT is consolidating its gains from the financial industry surge of late November. The stock is near all-time highs and in an uptrend, and dividend growth investors can buy here. BB&T Corp is a regional bank with branches in 15 states and Washington, D.C. Growth comes mostly from corporate loans, recreational vehicle loans, commercial mortgages and wealth management.
Next ex-div date: February 14, 2018 est.
BUY – Broadridge Financial Solutions (BR 91 – yield 1.5%) – After a four-month advance, BR is consolidating around 90. Dividend growth investors can buy a little here, or try to wait for the stock’s 50-day moving average, currently around 88, to catch up. Broadridge provides technology and services, like portfolio management tools and proxy vote processing, to financial firms. The company has increased its dividend in each of the past nine years, with the last five increases averaging 16% each.
Next ex-div date: March 14, 2018 est.
HOLD – Carnival (CCL 66 – yield 2.7%) – CCL surged to its highest level since September after reporting 2017 results last week, but has since pulled back into its trading range. The cruise company’s fourth-quarter results were much stronger than expected, and 2018 bookings are strong. But we’ll wait for more technical strength from the stock before putting CCL back on Buy.
Next ex-div date: February 21, 2018 est.
BUY – CME Group (CME 149 – yield 1.8%) – CME continues to consolidate its gains from late November, which pushed the stock past its pre-financial crisis peak for the first time. Excitement over bitcoin futures, plus CME’s special end-of-year dividend of $3.50 per share (the stock trades ex-dividend tomorrow), likely contributed to the momentum. CME is still rated Buy; if you’d like a lower-risk entry point you could try to wait for the 50-day moving average, currently at 143, to catch up to the stock. Or buy today to receive the special end-of-year dividend.
Next ex-div date: December 28, 2017 (special dividend)
HOLD – Cummins (CMI 176 – yield 2.5%) – CMI is back above its 50-day moving average and moving back toward its long-term trendline, which points up. The company makes heavy-duty engines used in trucks, construction equipment and other industrial and transport applications. The company is in the late stages of a recovery from the 2014-2015 industry downturn, and analysts expect EPS to expand 24% this year, followed by 14% growth next year. The stock is rated Hold because of its two big selloffs in July and October, but is looking healthier today.
Next ex-div date: February 15, 2018 est.
BUY – Wynn Resorts (WYNN 169 – yield 1.2%) – WYNN continues to hit new 52-week highs on a weekly basis. The stock is in a strong uptrend and earnings are expected to grow by double-digits this year and next. If you own it, hold; if you’re looking to start a position, consider waiting for a pullback, or for the stock’s 50-day moving average to catch up. Wynn owns two casino resorts in Macau, China, two in Las Vegas and is building the first large casino resort in the Boston, Massachusetts area.
Next ex-div date: February 13, 2018 est.
SAFE INCOME TIER
BUY – 3M (MMM 235 – yield 2.0%) – MMM continues to consolidate near all-time highs hit in late November. Long-term, the stock is in a steady uptrend and Safe Income investors who don’t own MMM yet can still start positions here. 3M is a diversified industrial conglomerate that makes products used in transportation, energy, health care and numerous other industries. Current and next year estimates have both been moving up and analysts currently expect 3M to deliver 12% EPS growth this year and 8% growth in 2018.
Next ex-div date: February 21, 2018 est.
HOLD – Consolidated Edison (ED 84 – yield 3.3%) – Utilities extended their losses last week, reflecting rising inflation expectations. A tight labor market and strong economic data have interest rate-sensitive securities anticipating a faster ramp-up to higher interest rates than previously. If you haven’t taken any profits in ED yet, now would be a good time to do so. We already sold a third of our shares, so we won’t take any action for now. ED is still a long-term hold for Safe Income, but if it looks like utilities are starting a prolonged downturn—perhaps if ED breaks through 80—we could take some more profits at some point.
Next ex-div date: February 12, 2018 est.
HOLD – Ecolab (ECL 134 – yield 1.1%) – After a short-lived breakout in early December, ECL has pulled back to the top of its trading range. The stock could establish a new range here, between about 133 and 138, which would represent some progress. Safe Income investors can continue to Hold. Ecolab is a cleaning products and services company, with mostly recurring revenues and a 31-year history of dividend growth.
Next ex-div date: March 16, 2018 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 January 2, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – PGX is another good option for the most conservative portion of your portfolio. PGX is an ETF that holds preferred shares. It doesn’t have capital appreciation potential, but trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share. It’s currently trading just a hair above 15, so I’ll keep it on Buy for investors who want to add a source of reliable monthly income to their portfolios.
Next ex-div date: December 15, 2017 est.
BUY – UnitedHealth Group (UNH 220 – yield 1.4%) – UNH continues to consolidate around 220. The company made an offer for a South American health insurer last week, expanding its international reach. UNH is in a long-term uptrend and is a Buy for Safe Income.
Next ex-div date: March 8, 2018 est.
HOLD – Xcel Energy (XEL 48 – yield 3.0%) – Last week’s utility selloff brought XEL to its lowest level since early October. The stock’s long-term uptrend remains intact, so we’ll continue to Hold, but if you haven’t taken any profits yet you might want to do so now. Xcel Energy is a Minnesota-based electric utility that has invested heavily in renewable energy, making the company the largest generator of wind power in the U.S. XEL trades ex-dividend today.
Next ex-div date: December 27, 2017
Closing prices as of December 26, 2017
