The major indexes have mostly moved sideways since our last update, but volatility remains high. Yesterday the market looked like it was in for another big selloff, but the indexes rallied after noon to end the day slightly higher (though the Dow was down slightly).
The past week also brought a slew of earnings reports, and some big reactions, so I have three rating changes today. I’m moving CME Group (CME) to Hold, and selling Cummins (CMI) and the rest of 3M (MMM). See below for full details.
Elsewhere, oil prices declined steeply yesterday, dragged down by appreciation in the dollar, and the 10-year treasury yield has been below 3% since Thursday. The Fed is meeting today but isn’t expected to take any action on rates. However, their statement could provide some clues to the rate path; at their last meeting, Fed members were evenly split on whether to raise rates two or three more times this year. And Friday brings the April Jobs Report, which will also have a big impact on rates.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 27 – yield 9.5%) – AB is back above its 50-day line after reporting strong, estimate-beating earnings Thursday. Revenues rose 13% to $868 million (analysts were expecting $820 million) and EPS rose a whopping 59% to $0.73 (analysts were expecting $0.68). Management also announced a second-quarter distribution of $0.73, which is 63% higher than the distribution paid in the second quarter of last year. AB’s distributions vary based on cash flow. The newly announced distribution is payable May 17 to investors who own the stock by the end of the day tomorrow. As for the stock, it’s still trading between overhead resistance around 27.50 and support at the 200-day moving average, currently around 25.50. Risk-tolerant investors can buy here for high yield, just remember that distributions don’t qualify for the lower dividend tax rate, and you’ll get a K-1 at tax time.
Next ex-div date: May 4, 2018
HOLD – General Motors (GM 36 – yield 4.2%) – GM reported first quarter results that beat estimates Thursday, but the stock is lower this week. First quarter revenue of $36.1 billion fell 12% year-over-year, mostly because GM sold fewer cars this quarter. Part of the drop was caused by planned downtime related to the launch of a new line of pickups in the U.S. later this year. Crossover sales were up, and sales still beat the analyst consensus of $34.6 billion. EPS also declined year-over-year, falling from $1.75 to $1.43, but beat the consensus analyst estimate of $1.28. However, the stock has dropped since the report, retreating about 5% from Thursday’s closing high. The stock has previously bounced at 35, but is under its 50- and 200-day moving averages.
Next ex-div date: June 7, 2018
HOLD – ONEOK (OKE 60 – yield 5.3%) – ONEOK reported mixed results after the close yesterday. Net income of $0.64 per share beat estimates by three cents, and was up 49% year-over-year. Revenue was up 13% year-over-year, thanks to strong growth in the volume of natural gas and natural gas liquid transported and processed. However, revenues still fell slightly short of analysts’ consensus estimate. ONEOK’s earnings call isn’t until later this morning (11AM EST), so the stock’s reaction isn’t clear yet. For now, Hold. OKE is near the top of its trading range, and yields a well-covered 5.3% and has increased its dividend every year since 2003.
Next ex-div date: August 3, 2018 est.
BUY – STAG Industrial (STAG 25 – yield 5.7%) – STAG reported earnings after the close yesterday. Core FFO (funds from operations) of $0.43 per share met analyst estimates, and were up 5% year-over-year. Revenues rose 18% but missed estimates slightly. Like ONEOK, STAG will hold a conference call to discuss the results later this morning, and the stock’s reaction will be clearer after management’s discussion. Prior to the report STAG was trading at its highest level since early February, and above its 50-day moving average.
Next ex-div date: May 30, 2018
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 99 – yield 1.4%) – AXP is pulling back following its big post-earnings jump, which brought the stock to a new 52-week high. The pullback looks normal so far; AXP’s 50-day moving average is down around 96. Amex will hold its annual shareholder meeting May 7. Hold.
Next ex-div date: July 5, 2018 est.
HOLD – BB&T Corp (BBT 53 – yield 2.5%) – BBT is also pulling back from its post-earnings high, and is back below its 50-day moving average. So far, the pullback looks normal and the stock’s trend is still sideways. BBT is a Hold for Dividend Growth investors.
Next ex-div date: May 10, 2018
HOLD – Broadridge Financial Solutions (BR 108 – yield 1.4%) – BR’s breakout past 110 has failed and the stock is back in its consolidation range. On the plus side, the stock’s 50-day moving average has finally caught up to it, which will help provide a stronger launching pad for the next breakout. For now, BR is a solid Hold for dividend growth.
Next ex-div date: June 14, 2018 est.
HOLD – Carnival (CCL 64 – yield 3.1%) – CCL isn’t looking so hot. After deflecting off the bottom of its 50-day line last week, the stock is back at the bottom of its trading range. CCL has found support and bounced here, around 63, twice before: in September and again earlier this month. So the stock is still within its 11-month trading range. But it’s below its 200-day moving average now (it was above it until March). We’ll Hold for now.
Next ex-div date: May 24, 2018
HOLD – CME Group (CME 157 – yield 1.8%) – CME reported earnings before the open Thursday, and while EPS of $1.86 beat the consensus by three cents, revenues missed estimates by a hair. Both were higher year-over-year: revenues by 19% and EPS by 50%. Average daily volume on CME’s exchanges hit an all-time high in the quarter, although the price per contract fell because of faster growth in lower-priced financial products (vs. higher-priced products like commodity futures.) CME has been volatile since the announcement, but has mostly headed lower. The stock is now back below its 50-day moving average and around where it found support at the start of April. I’m going to put CME on Hold for now, since the double-dip below the 50-day is a little worrying, and current-year earnings estimates have declined over the past week. If all is well, the stock will bounce here and I’ll put it back on Buy soon.
Next ex-div date: June 7, 2018 est.
SELL – Cummins (CMI 153 – yield 2.8%) – CMI sold off sharply, on high volume, after reporting earnings yesterday. EPS of $3.30 and revenues both beat estimates, and both were up over 20% year-over-year. However, EPS were adjusted for a costly engine repair program, and would have fallen to $1.96 if not adjusted. The repair program, started after some diesel engines made in 2013 failed emissions tests, has already cost Cummins almost $200 million and was just expanded to engines made between 2010 and 2015. Management raised their 2018 guidance, but the good news was overshadowed by concerns about the cost of the repair program. The selloff is CMI’s second major drop in two weeks, and brought CMI to a new 52-week low. The chart looks terrible, and I’m going to Sell CMI today. After four high-volume selloffs since the start of the year, and two failed attempts to bounce off its 200-day, CMI has run out of chances to get its act together. SELL.
Next ex-div date: May 18, 2018 est.
BUY – Intel (INTC 53 – yield 2.3%) – INTC opened higher after reporting earnings Thursday, but has since pulled back. The chipmaker reported EPS of $0.87, up 32% and well above estimates, and revenue of $16.1 billion, up 9% and 7% above estimates. Management raised their 2018 guidance, triggering a raft of upward analyst revisions. Full-year EPS are now expected to hit $3.82; a week ago the consensus estimate was $3.54. However, Intel said Friday that mass production of its new Cannon Lake chips will be delayed until 2019. The stock’s pullback erased its post-earnings gains, but it’s still above its 50-day and in an uptrend. I’ll keep INTC on Buy for now. The stock trades ex-dividend on Friday.
Next ex-div date: May 4, 2018
SAFE INCOME TIER
SELL – 3M (MMM 195 – yield 2.8%) – Instead of getting a bounce in MMM the stock has slipped further, and I’m going to sell the rest of our position today before our small profit becomes a loss. MMM sold off sharply after management lowered their 2018 guidance last week, and is now at 52-week lows. Sell.
Next ex-div date: May 16, 2018 est.
HOLD – PowerShares BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.0%)
BUY – PowerShares BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – PowerShares BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.9%)
BUY – PowerShares BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
The BulletShares funds make up our bond ladder, which is a conservative strategy for generating income by buying a series of individual bonds or defined-maturity bond funds that mature in successive years. Because the BulletShares funds mature at the end of the year in their name (at which point Invesco disburses the net asset value of the ETF back to investors), they are a good store of value even when interest rates rise. And if you reinvest the proceeds of the maturing fund in a new, longer-dated holding every year, you can secure rising income stream as rates rise. You can construct your own ladder with either the investment-grade or high-yield funds, or a mix, as we’ve done. The 2018 fund’s yield will gradually decline over the second half of this year as Invesco moves the fund into cash, so if you’d like to construct your own bond ladder today, start with BSCJ or its 2019 high-yield counterpart, BSJJ.
Next ex-div dates: est. June 1, 2018 est.
HOLD – Consolidated Edison (ED 80 – yield 3.6%) – ConEd will report first-quarter results tomorrow, May 3, after the close. Analysts are expecting EPS of $1.29 and revenue of $3.32 billion, up 1.6% and 2.8%, but the stock rarely reacts strongly to earnings. Instead, ED is driven by interest rates and appetite for low-risk stocks. After pulling back to its 50-day two weeks ago, ED bounced off the moving average is now trading above it. Safe Income investors can Hold for slowly rising income, and I might put ED back on Buy again soon if support continues to hold.
Next ex-div date: May 15, 2018
BUY – Ecolab (ECL 147 – yield 1.1%) – Ecolab reported earnings that beat estimates after the close yesterday. EPS of $0.91 were up 14% and one cent above estimates. Revenue of $3.47 billion rose 10% year-over-year and also beat estimates by a small margin. ECL is trading near all-time highs and can be bought for Safe Income.
Next ex-div date: June 15, 2018 est.
BUY – McGrath RentCorp (MGRC 59 – yield 2.3%) – McGrath, the latest addition to our Safe Income tier, was added to the portfolio at the stock’s average price of 58.55 last Thursday. The company reported strong earnings after the close yesterday. EPS of $0.59 beat estimates by 12 cents and were up 79% year-over-year, thanks in part to the lower tax rate, which added 11 cents to EPS. Revenues rose 11% to $105.09 million, beating estimates by $5.17 million.
Next ex-dividend date: July 13, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 14 – yield 5.8%) – PGX remains under 14.50, presenting a good buying opportunity for investors looking to add reliable monthly income to their portfolios. PGX is an ETF that holds preferred shares and pays monthly distributions. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16. Buy for a good store of value and regular income.
Next ex-div date: May 15, 2018 est.
HOLD – UnitedHealth Group (UNH 237 – yield 1.3%) – UNH is consolidating its post-earnings gains. The stock’s intermediate-term trend is still sideways, but it’s getting healthier, and is above its 50- and 200-day moving averages. Hold.
Next ex-div date: June 14, 2018 est.
HOLD – Xcel Energy (XEL 47 – yield 3.1%) – Utility Xcel Energy reported mixed earnings results Thursday, but the stock moved up anyway. EPS of $0.57 beat estimates by six cents, but revenues of $2.95 billion (flat year-over-year) missed estimates by $10 million. Risk appetites and interest rates have a bigger influence on demand for utilities than company-specific factors these days, and XEL is looking healthy. The stock bounced off its 50-day line two weeks ago and is now trading just below its 200-day. Investors whose primary goal is income can continue to Hold.
Next ex-div date: June 12, 2018 est.
Closing prices as of May 1, 2018
