As you can tell by glancing at the portfolio summary table at the bottom of this update, the market is healthy. I’m putting two stocks back on Buy today: Dividend Growth tier holdings Cummins (CMI) and Safe Income tier holding Ecolab (ECL). Both have been on Hold for a few months because of technical weakness, but have started trending up again.
That brings the total number of Buy-rated recommendations in our portfolio to 16 out of 21, reflecting the generally strong state of the market today.
The exception is interest rate-sensitive securities, which is why our utilities and our REIT are still rated Hold. Strong economic data has investors anticipating a significant increase in yields later this year, as I describe in more detail in my update on Welltower (HCN), below. As a result, I’m also putting the PowerShares Preferred Portfolio (PGX) on Hold today, though if you already own it, you can hang on for the income.
HIGH YIELD TIER
BUY – General Motors (GM 44 – yield 3.5%) – GM has advanced nearly 4% since our last update, after reporting better than expected December sales last week. The latest move brings the stock closer to the top of its two-and-a-half-month-long consolidation range, and brings our total return to 44%. Though its yield has declined since we added it to the high yield portfolio (due to appreciation in the stock price) I’ll keep the stock on Buy for investors who are interested in GM’s 3.4% yield and decent medium-term growth potential. While earnings growth expectations are mixed, GM is increasingly seen as a play on the future of mobility, as the company invests heavily in self-driving and electric cars. GM will report earnings February 6.
Next ex-div date: March 7, 2018 est.
BUY – ONEOK (OKE 56 – yield 5.3%) – OKE pulled back briefly Friday after announcing a new pipeline project financed partly by new equity issuance. The stock has already recovered, suggesting that investors approve of the investment. The new Elk Creek Pipeline will carry natural gas liquids about 900 miles from Montana to Kansas and is expected to be completed by the end of 2019. Since bottoming around 50 three weeks ago, OKE has advanced nicely and is back near the top of its year-long trading range. Risk-tolerant investors can buy OKE here for the high yield. 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 4.7%) – PBA hit a new 52-week high Friday, before pulling back a bit this week. High yield investors looking to add monthly income to their portfolio can buy a little here. Pembina is a Canadian company (that 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: January 24, 2018
HOLD – Welltower (HCN 61 – yield 5.7%) – REITs continue to underperform. The Vanguard REIT ETF (VNQ) has declined 4.3% over the past four weeks, even as the S&P 500 has risen 3.4%. Investors are turning away from the sector in anticipation of significant increases in interest rates and treasury yields later this year. The yield on the 10-year is already at its highest level since March, driven by strong economic data, which is expected to drive inflation higher soon. Looking at the same data, the Fed has said they expect to raise rates three times this year (though the market continues to predict only 2 hikes.) The latest CPI data will be released Friday, shining more light on the current inflation picture. But expectations have already shifted enough to have a significant impact on interest rate-sensitive securities like REITs. The Fed’s ongoing portfolio unwind and the recent tax cuts are also expected to push treasury yields higher, by reducing the demand for treasuries (the Fed has been a major buyer since the financial crisis) and increasing the budget deficit (forcing the Treasury to issue more debt.) It all adds up to a bad environment for REITs like Welltower, which see their costs rise and their popularity with investors decline when fixed income yields increase. Given the stubbornness of the intermediate-term downtrend, and our mounting loss (currently 15%) it’s tempting to sell the rest of our HCN here. But long-term, the stock remains in its broad, trendless trading range between about 55 and 85. And HCN could still find support around 60, where it bounced just after Trump was elected in November 2016. At that point, our loss would approach our outer limit of 20%, so we would sell on a definitive breakthrough to the downside. But for now, we’ll Hold our half-positon. As always, use your own personal loss limit in your own portfolio, and reduce your exposure if you haven’t yet.
Next ex-div date: February 2, 2018 est.
DIVIDEND GROWTH TIER
BUY – American Express (AXP 101 – yield 1.4%) – AXP’s steady uptrend continues and the stock is trading near all-time highs. The credit card company will report fourth-quarter and full-year results January 18, after the close. For the quarter, analysts expect revenue and earnings to hit $8.72 billion (up 8.7%) and $1.55 (up 76.1% from the fourth quarter 2016, when earnings missed expectations badly). For the full year, EPS are expected to rise 3.5%, to $5.85, and revenue is expected to hit $33.34 billion, up 3.8%. Investors who like dividends and growth can buy AXP here.
Next ex-div date: April 5, 2018 est.
BUY – BB&T Corp (BBT 52 – yield 2.5%) – BBT hit a new all-time high yesterday. The stock is in a gradual 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 93 – yield 1.6%) – BR finally broke out of its consolidation range to the upside, and hit a new all-time high yesterday. The stock’s long-term uptrend is healthy and steady, and dividend growth investors can Buy here. 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 68 – yield 2.7%) – CCL remains firmly in the middle of its four-month trading range. The cruise company’s fourth-quarter results were much stronger than expected, and 2018 bookings are strong, helping to dispel some worries about the impact of the strong hurricane season. But CCL continues to underperform the market. We’ll continue to wait to see what the stock does next.
Next ex-div date: February 21, 2018 est.
BUY – CME Group (CME 153 – yield 1.7%) – After pulling back to its 50-day moving average last week, CME has rebounded quickly to the top of its recent range. CME operates some of the world’s largest financial exchanges, where investors trade futures, options and other derivatives. In 2017, average daily trading volume on all of CME’s exchanges increased by 4%, led by more trading in options, metals and interest rate contracts. The company will report earnings February 1, before the market opens. Investors primarily interested in growth as well as dividends that rise steadily over time can start positions here.
Next ex-div date: March 7, 2018 est.
BUY – Cummins (CMI 182 – yield 2.4%) – CMI’s renewed uptrend continues, and the stock recently surpassed its previous all-time high from way back in late October. The renewed strength and strong earnings growth expectations give me the confidence to put CMI back on Buy today. Cummins will report earnings February 6, before the open. Analysts expect fourth-quarter sales to hit $5.2 billion, up 15%, and EPS to reach to $2.64, up 17%. For the full year, EPS are expected to rise 25%, to $10.25, while sales are expected to rise 15%, to $20.1 billion. Cummins makes heavy duty engines used in trucks, construction equipment and other industrial and transport applications. Investors looking for medium-term price appreciation and dividend growth can Buy CMI here.
Next ex-div date: February 15, 2018 est.
BUY – Wynn Resorts (WYNN 163 – yield 1.2%) – WYNN remains off its highs after December gaming revenue from Macau disappointed two weeks ago. The pullback still looks normal though, and dividend growth investors who don’t own WYNN yet can use it as a buying opportunity. The stock is in a strong uptrend and earnings are expected to growth by double-digits this year and next. 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 241 – yield 1.9%) – MMM bounced off its 50-day moving average last Wednesday, and is back near the top of its recent trading range. The stock could continue to consolidate for a few more weeks, or begin a new uptrend here. Either way, MMM is in a steady long-term uptrend and is a solid Buy for safe income. The company will announce fourth-quarter and full-year earnings results January 25, before the open. Analysts expect fourth quarter EPS to hit $2.02, up 7.5%, while sales are expected to rise 6.5% to $7.8 billion. Full-year sales are expected to hit $31.46 billion, fueling 11.4% EPS growth, to $9.09. 3M is a diversified industrial conglomerate that makes a products used in transportation, energy, health care and numerous other industries.
Next ex-div date: February 21, 2018 est.
HOLD – Consolidated Edison (ED 82 – yield 3.4%) – Utilities have been hit hard in recent weeks by rising interest rate expectations. ED is down about 8.5% over the past month, about the same as the utilities index. The stock found some short-term support Friday and could pause here for a bit. 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—like if ED breaks through 80—we could take some more profits at some point.
Next ex-div date: February 12, 2018 est.
BUY – Ecolab (ECL 137 – yield 1.2%) – ECL looks decent; the stock bounced off its 50-day a couple weeks ago and has been trending up since. Given the strength in the market, I’ll put ECL back on Buy today for Safe Income investors. 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.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – PGX will likely pull back if interest rates start to rise significantly, but the ETF isn’t likely to fall far. Last time rates spiked, in the fourth quarter of 2016, PGX corrected as far as 14 before eventually rebounding. I’m putting the preferred ETF on Hold today, but if you own it, there’s no need to be worried: PGX’s monthly dividends more than make up for the ETF’s limited pullbacks.
Next ex-div date: January 12, 2018 est.
BUY – UnitedHealth Group (UNH 226 – yield 1.3%) – UNH continues to consolidate between 220 and 230. The stock’s 50-day moving average, currently around 218, is slowly catching up. UnitedHealth is a major health insurer and, increasingly, provider of health services. The stock 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 47 – yield 3.1%) – XEL has declined slightly more than the utilities index over the past month, as utility stocks get hit by rising interest rate expectations. We’ll continue to Hold for the long term, but the short-term is likely to remain choppy. 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.
Next ex-div date: March 20, 2018 est.
Closing prices as of January 9, 2018
