Volatility continues on Wall Street. Every time stocks seem to be building sustainable momentum, they run into a brick wall. The CBOE Volatility Index (VIX), a.k.a. the investor “fear gauge,” remains well above its 52-week average, showing that there are still some concerned investors out there. Throw in the uncertainty surrounding President Trump’s controversial proposal to impose tariffs on all steel and aluminum imports, and it’s easy to see why the market waters are still a bit choppy.
Against that backdrop of uncertainty, it’s a good time to have some extra safety built in to your portfolio. A high yield can help cushion the blow of the daily ups and downs in your share prices. It’s one reason why we added AllianceBernstein (8.5% yield) and jettisoned the underperforming Exxon Mobil (4% yield) last week. Down more than 14% since the start of February, XOM could no longer be trusted. By contrast, AllianceBernstein has weathered the recent market correction quite well.
So have most of the other stocks that remain in our Cabot Dividend Investor portfolio. Here’s what’s going on with each of them.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 27 – yield 8.5%) – AllianceBernstein was added to the high-yield tier last Wednesday at the stock’s average price for the day of 26.43. It has made modest gains in the week since, opening above 27 this morning. High-yield investors who are okay with owning partnerships can add the stock here. AB is seeing strong inflows, particularly into its actively managed products, thanks to recent outperformance. That’s good news for the stock price and the dividend, which varies based on cash flow.
Next ex-div date: May 3, 2018 est.
HOLD – General Motors (GM 38 – yield 4.0%) – GM has had a rough week, tumbling below its 40-to-42 range to close just below 38 on Tuesday. As a result, I’m moving it from a cautious Buy to a Hold. Increasing sales of traditional cars remains a challenge, and GM’s EPS are expected to decline slightly this year and next (although the company beat estimates by a large margin last year by focusing on profitability). Big picture, investors excited about autonomous vehicles are increasingly turning to GM. The company could launch an autonomous ridesharing fleet as soon as 2019. And last month, California approved testing autonomous vehicles without drivers in them, a first. But right now, investors are shunning the stock. Hopefully the selloff is temporary.
Next ex-div date: March 8, 2018
HOLD – ONEOK (OKE 57 – yield 5.2%) – ONEOK, a natural gas pipeline and processing company, has gotten a nice little boost since reporting fourth-quarter earnings last week. Bottom-line growth of 21% helped, pushing the stock from 56 to 57. OKE remains above its 50-day moving average, about halfway between its February correction low and its previous high, and within its long-term trading range dating back to the start of last year. A breakout past 60 would be bullish. Hold.
Next ex-div date: May 3, 2018 est.
HOLD – Pembina Pipeline (PBA 32 – yield 5.3%) – After a nice bounce following its fourth-quarter earnings report in late February, PBA’s momentum has fizzled a bit. The stock is still comfortably above its early February low point (30), but trails its 50- and 200-day moving averages. Overall, PBA is looking healthier, but remains a Hold for now.
Next ex-div date: March 21, 2018 est.
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 96 – yield 1.5%) – After surging above its 50-day moving average, AXP has tumbled in recent days, though not as sharply as it did a month ago. The stock still trades well above its low point (88). In the meantime, the company is defending itself at the Supreme Court in a lawsuit alleging anti-competitive practices. The plaintiffs argue that Amex’s merchant contracts are anti-competitive because they prevent merchants from steering customers toward other payment options, for example, by offering a lower price for those who pay by MasterCard or cash. MasterCard and Visa have faced similar lawsuits in the past and settled them by changing their contract terms.
Next ex-div date: April 5, 2018 est.
BUY – BB&T Corp (BBT 55 – yield 2.4%) – BB&T is holding steady, trading at the top of its 53-to-55 range from the past month. A move to new highs above 56 could come any day now, and result in a much longer breakout. As a result, BBT is a Buy.
Next ex-div date: May 9, 2018 est.
BUY – Broadridge Financial Solutions (BR 106 – yield 1.4%) – Broadridge continues to hit new all-time highs, soaring more than 16% in the last month. All is well at the company, which provides shareholder services and other services and technology to financial companies. Analysts expect EPS to rise almost 30% this year. Try to buy on pullbacks, which have been few and far between of late.
Next ex-div date: March 14, 2018
BUY – Carnival (CCL 66 – yield 2.7%) – CCL has been up and down the last couple of months, dipping back below its 50-day moving average this week but remaining just above its 200-day average. But I still think the stock’s next move is up. CCL spent the last five months consolidating, and had finally broken out to a new high just before the market correction started. Plus, analysts expect EPS to increase 13% this year and 15% next year.
Next ex-div date: May 23, 2018 est.
BUY – CME Group (CME 170 – yield 1.7%) – CME continues to hit new all-time highs. All the increased market volatility mentioned above is expected to provide a nice boost to the company’s 2018 results. (CME operates exchanges where futures, options and other derivatives are traded.) Analysts are raising their 2018 estimates and upgrading the stock, which should fuel further gains. Buy on pullbacks.
Next ex-div date: March 8, 2018
HOLD – Cummins (CMI 161 – yield 2.7%) – After showing signs of life, CMI has had a rough week, tumbling to new six-month lows on Friday before recovering slightly early this week. The long-term trend is still up, and we still have a 9% total return since buying the stock last May. Global economic growth continues to drive demand for Cummins’ engines, and analysts expect Cummins to deliver 8% sales growth and 18% EPS growth in 2018. However, another week or two like this last one and we may have to reexamine our position. Hold for now.
Next ex-div date: May 18, 2018 est.
SAFE INCOME TIER
BUY – 3M (MMM 234 – yield 2.3%) – MMM continues to be up and down, but has held 230 support, which is a nice sign. Despite dipping back below its 50-day moving average since our last update, I’ll keep MMM on Buy, at least until it falls below that 230 level. There’s still a lot to like about 3M. The company offers unparalleled free cash flow generation and a very reliable 2.3% yield—it has paid dividends consistently for 100 years, with increases every year since 1959. For investors worried about 3M’s high price, remember: it’s not how many shares you own, it’s the dollar value. (You can also consider using dividend reinvestment, which often allows you to buy fractional shares to gradually increase your position size over time.)
Next ex-div date: May 16, 2018 est.
HOLD – Consolidated Edison (ED 75 – yield 3.8%) – Utilities continue to trade sideways despite the likelihood of extra interest-rate hikes this year. The sector is likely to stay out of favor for some time, but we’re betting most of the pain came early in the rate hike cycle, as in recent years. Now that investors have adjusted their expectations, the rate hikes themselves are likely to be absorbed more easily. ED is a Hold for long-term investors looking for slowly rising income.
Next ex-div date: May 14, 2018 est.
HOLD – Ecolab (ECL 131 – yield 1.3%) – ECL remains below its 200-day moving average, although it is trending up. Analysts have been revising their 2018 and 2019 estimates higher since the company’s earnings report last month; EPS are now expected to rise 14% this year and 11% next year. That’s solid growth for a 95-year-old industrial company with a 31-year history of dividend growth. It’s not the strongest stock in our portfolio, but safe income investors can Hold.
Next ex-div date: March 19, 2018
SOLD – ExxonMobil (XOM 76 – yield 4.0%) – We sold the rest of our XOM shares at last Wednesday’s average price of 76.98, for a total return of about -11%. Although XOM looks to have bottomed for now, the damage done to XOM in February means the stock’s recovery is going to be a slog. The five-month uptrend that contributed to our decision to buy the stock is broken and the stock’s current trend is sideways at best.
Next ex-div date: May 10, 2018 est.
HOLD – 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 24 – yield 4.9%)
BUY – Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
Next ex-div dates: est. June 1, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.7%) – PGX is an ETF that holds preferred shares and pays dividends monthly, making it a good conservative holding for investors looking for regular income. The fund has low volatility (a welcome reprieve in the current environment) but no capital appreciation potential; it generally trades between 14 and 16. The recent interest rate spike brought PGX down to about 14.50, where it’s buyable.
Next ex-div date: March 15, 2018 est.
BUY – UnitedHealth Group (UNH 226 – yield 1.3%) – UnitedHealth is a major health insurer and provider of medical services. The company has an eight-year history of dividend growth and a payout ratio of only 27%. UNH is back below its 50-day moving average but has still made up nearly half of its losses from the February correction. The stock’s long-term uptrend is intact, and analyst estimates are moving up. In 2018, UNH is expected to grow sales by 12% and EPS by 24%. Safe income investors can buy UNH here.
Next ex-div date: March 8, 2018
HOLD – Xcel Energy (XEL 43 – yield 3.4%) – XEL has been trading sideways for more than a month and long-term investors whose primary goal is income can continue to Hold. The utility just increased its dividend by 5.6%, the 14th consecutive annual increase in a row. XEL is a Minnesota-based utility, the largest producer of wind energy in the U.S., and has a highly reliable regulated income stream.
Next ex-div date: March 14, 2018
Closing prices as of March 6, 2018
