The stock market remains very strong, and a third of S&P stocks hit new 52-week highs on Friday. The Dow traded over 26,000 for the first time ever yesterday, although all the major indexes then pulled back to end the day lower.
Interest rates continue to rise, causing more pain for REITs and utilities.
And earnings season has begun in earnest. UnitedHealth (UNH) reported excellent results and issued strong guidance yesterday, and American Express (AXP) and BB&T Corp. (BBT) will report tomorrow.
HIGH YIELD TIER
BUY – General Motors (GM 44 – yield 3.4%) – Yesterday, GM updated its earnings guidance for the next few years, and analysts were happy with what the company had to say. Management said 2017 earnings will be at the high end of previous guidance, and that 2018 earnings will be in line with 2017 earnings, which puts both above analysts’ current average estimates. (Analysts had been expecting EPS to decline 5% next year.) In other news, GM has asked U.S. regulators to approve an autonomous car without a steering wheel. If approved, GM will begin using the autonomous cars in its ride-sharing service next year. GM remains a Buy for investors who are interested in the stock’s 3.4% yield and decent medium-term growth potential. While earnings growth expectations remain moderate, GM is increasingly seen as a play on the future of mobility, which is attracting new investors. GM will report earnings on February 6.
Next ex-div date: March 7, 2018 est.
BUY – ONEOK (OKE 59 – yield 5.1%) – OKE broke out to a new six-month high late last week, putting the stock within a few cents of its 52-week high of 59.3. A breakout past 59 could mark the start of a new uptrend for OKE, which has been in consolidation mode for the past 12 months. 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 35 – yield 4.8%) – PBA has been lagging behind the energy index since the start of the year, but the correction still looks normal, and 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 59 – yield 5.9%) – Bolstered by a stronger-than-expected core CPI reading, the yield on the two-year treasury jumped above 2% Friday, its highest level since 2008. The market has also begun pricing in three 2018 rate hikes, up from two in previous weeks. That contributed to another lousy week for REITs like Welltower, which are sensitive to interest rate moves. But it looks like HCN might find support this week, so we’ll give the stock a few more days to prove itself. These adjustments to changing interest rate expectations can be tough to sit through, but they’re often shorter than expected.
Next ex-div date: February 2, 2018 est.
DIVIDEND GROWTH TIER
BUY – American Express (AXP 100 – yield 1.4%) – AXP remains near all-time highs. The credit card company will report fourth-quarter and full-year results tomorrow, January 18, after the close. For the quarter, analysts expect revenue and earnings to hit $8.72 billion (up 8.7%) and $1.54 (up 75.0% 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 don’t own it yet can still buy AXP for dividends and growth.
Next ex-div date: April 5, 2018 est.
BUY – BB&T Corp (BBT 53 – yield 2.5%) – The uptick in interest rates slamming REITs and utilities is a tailwind for financials, and the Financial SPDR (XLF) is up more than 4% since the start of the year. BBT is along for the ride, and hit a new all-time high on Friday. The bank will report earnings tomorrow, January 18, before the open. Analysts expect fourth-quarter EPS to hit $0.79, up 9.7% from $0.72 in the fourth quarter of 2016. Revenue is expected to rise to $2.83 billion, up 3.9%. For the full year 2017, analysts expect EPS of $2.76, down one cent from $2.77 in 2016, and revenue of $11.34 billion, up 5.1%. BBT is a Buy for dividend growth investors.
Next ex-div date: February 14, 2018 est.
BUY – Broadridge Financial Solutions (BR 94 – yield 1.6%) – BR hit a new all-time high yesterday, and closed higher despite the broad market pullback. 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. Dividend growth investors can buy on pullbacks.
Next ex-div date: March 14, 2018 est.
HOLD – Carnival (CCL 69 – yield 2.6%) – CCL is back at the top of its four-month trading range and has good momentum; the stock could break out to the upside any day. If it does, I’ll put CCL back on Buy. For now, it’s a Hold.
Next ex-div date: February 21, 2018 est.
BUY – CME Group (CME 152 – yield 1.7%) – CME operates some of the world’s largest financial exchanges, where investors trade futures, options and other derivatives. The stock is in a healthy uptrend and recently bounced off its 50-day moving average. CME will report fourth-quarter earnings on February 1 before the market opens. Analysts expect fourth-quarter revenue and EPS to slip 3.2% and 4.4%, though both are expected to rise for the full year (by 1% and 5%, respectively). 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 183 – yield 2.4%) – CMI’s renewed uptrend continues, and the stock hit a new all-time high on Friday. Cummins will report earnings on February 6 before the open. Analysts expect fourth-quarter sales to hit $5.2 billion, up 15.5%, and EPS to reach to $2.65, up 17.8%. For the full year, EPS are expected to rise 24.5%, to $10.25, while sales are expected to rise 14.8%, 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 169 – yield 1.2%) – WYNN popped 2% higher yesterday after Morgan Stanley raised its long-term revenue forecasts for the Macau gaming sector. 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. WYNN is volatile but in a strong uptrend, and earnings are expected to grow by double-digits this year and next. Fourth-quarter results will likely be released in late January. Analysts are expecting 21% revenue growth, to $1.57 billion, and EPS of $1.44, up 188% from the fourth quarter of 2016. For the full year, EPS are expected to rise 57%, to $5.31, on 38% revenue growth, to $6.18 billion.
Next ex-div date: February 13, 2018 est.
SAFE INCOME TIER
BUY – 3M (MMM 245 – yield 1.9%) – MMM hit a new all-time high yesterday. The stock 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 on January 25 before the open. Analysts expect fourth-quarter EPS to hit $2.03, up 7.5%, while sales are expected to rise 7.4% to $7.9 billion. Full-year sales are expected to hit $31.54 billion, fueling 11.5% EPS growth, to $9.10. 3M is a diversified industrial conglomerate that makes products used in transportation, energy, health care and numerous other industries.
Next ex-div date: February 21, 2018 est.
HOLD – Consolidated Edison (ED 79 – yield 3.5%) – The utilities selloff continues, and ED is now 12% off its December high and below its June-September lows. If you’re a shorter-term investor, or don’t have much of a profit cushion, sell ED here. If you’re familiar with options, you could also consider buying puts to limit your downside exposure. I’m hesitant to reduce our position much more—we still have a 53% profit in ED, and only a two-thirds position, which I’m still confident in long term—so we’ll hold for now.
Next ex-div date: February 12, 2018 est.
BUY – Ecolab (ECL 137 – yield 1.2%) – ECL looks healthy, the stock closed at a new all-time high yesterday. The company will release fourth-quarter and full-year results on February 20 before the open. Ecolab is a cleaning products and services company, with mostly recurring revenues and a 31-year history of dividend growth. Long-term investors can buy here.
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 February 1, 2018 est.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.7%) – PGX will likely pull back if interest rates start to rise significantly, but the ETF isn’t likely to fall far. The last time rates spiked, in the fourth quarter of 2016, PGX corrected as far as 14 before eventually rebounding. I’m keeping the preferred ETF on Hold, 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 18, 2018 est.
BUY – UnitedHealth Group (UNH 233 – yield 1.3%) – UNH popped 2% yesterday after management reported 2017 results and updated 2018 guidance. Fourth-quarter revenues and EPS rose 10% and 23%, beating estimates easily. In addition, management raised its 2018 guidance by 17%, citing the recent tax cuts. 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 45 – yield 3.2%) – XEL is getting close to its 52-week low. As with ED, I’m hesitant to reduce our two-thirds position by much more because I want to own the stock long term. But if you’re a shorter-term investor or have a loss, sell here. Other investors may want to buy puts to limit their potential losses. 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 16, 2018
