Although the market remains volatile, the action in the major indexes improved this week. The S&P 500, for example, bounced off its 200-day moving average again Friday, its third time retesting that level and finding support since the start of the year.
Interest rates have spiked higher again this week, and the U.S. 10-year yield popped back above 3% this morning. Last week brought a slew of strong economic data, including the lowest unemployment rate measured since 2000. This week, a geopolitically influenced spike in oil prices is the primary driver behind higher rates, since rising oil prices tend to drive faster inflation.
I have three rating changes today. I’m putting high-yield holding ONEOK (OKE) and dividend growth stock Broadridge Financial (BR) back on Buy after both stocks broke out this week. I’m also selling one third of CME Group (CME), which has weakened, especially relative to the market.
As always, don’t hesitate to reach out to me at chloe@cabotwealth.com with any questions about this update or your portfolio.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 27 – yield 9.6%) – AB looks healthy, the stock is still trading above its 50-day line, and isn’t far off its 52-week high. The stock’s 200-day moving average, which provided support in February, is rising and is now around 26. 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: August 2, 2018 est.
HOLD – General Motors (GM 36 – yield 4.2%) – GM is below its 200- and 50-day moving averages, and trending down. The stock bounced at 35 in March, and could find support there again. Since we’ve already sold two-thirds of our position at higher prices, we’ll hold to see if that happens. However, if you still have a lot of exposure to GM, I recommend selling some now. The stock’s trend doesn’t bode well.
Next ex-div date: June 7, 2018
BUY – ONEOK (OKE 64 – yield 5.0%) – OKE broke out past long-term resistance around 61 last Wednesday, after reporting strong earnings including 49% growth in net income. The stock is now trading at 52-week highs, and will probably spend some time consolidating while its 50-week moving average catches up. However, the stock looks healthy and the dividend (recently increased) is well-covered, so I’m going to put OKE back on Buy for high-yield investors. Note that although ONEOK is a pipeline, it’s not a master limited partnership (or MLP). The company is organized as a corporation and dividends qualify for the lower dividend tax rate.
Next ex-div date: August 3, 2018 est.
BUY – STAG Industrial (STAG 26 – yield 5.5%) – STAG has been advancing—on rising volume—since the warehouse REIT reported earnings last Tuesday. The industry is healthy, management said on Wednesday’s call: tenants are signing longer leases and rents are rising. While most demand is still driven by population and economic growth, e-commerce is providing a nice tailwind, with 35% of STAG’s buildings now tied to e-commerce. The rally has brought STAG to its highest level since early January, although the stock is now pausing for a moment under its 200-day moving average. High-yield investors can buy some here.
Next ex-div date: May 30, 2018
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 100 – yield 1.4%) – AXP looks healthy. The stock’s pullback from its post-earnings high ended with a bounce off the stock’s 50-day Friday, and AXP is now moving up again. AmEx held their annual shareholder meeting Monday, and while estimates haven’t moved, the stock’s reaction suggests analysts are pleased.
Next ex-div date: July 5, 2018
HOLD – BB&T Corp (BBT 54 – yield 2.4%) – BBT is trading sideways around its 50-day moving average, and for now that’s what it’s likely to keep doing. BBT is a Hold for Dividend Growth investors. BBT trades ex-dividend tomorrow.
Next ex-div date: May 10, 2018
BUY – Broadridge Financial Solutions (BR 112 – yield 1.3%) – Broadridge reported third-quarter results yesterday, and the stock surged to a new closing high. Revenues rose 6% to $1.07 billion and adjusted EPS rose 45%, beating estimates by a wide margin. Even better, management raised their 2018 EPS guidance, and is now expecting EPS to rise 31% to 35% for the full year, up from the previous range of 27%-31%. This is BR’s second breakout past 110 in two months, but the stock has better support from its 50-day moving average this time (and volume was higher). Optimistically, I’m going to put BR back on Buy today.
Next ex-div date: June 14, 2018
HOLD – Carnival (CCL 64 – yield 3.1%) – CCL appears to have found support around 63, where it bounced in September and April, for now. But the stock remains below its 50- and 200-day moving averages. Hold for now.
Next ex-div date: May 24, 2018
SELL 1/3 – CME Group (CME 158 – yield 1.8%) – There’s nothing big wrong at CME, but there are a few smaller reasons to worry. First, the stock has been below its 50-day moving average for the past two weeks, its second visit below the line since the start of the year. Second is CME’s reaction to earnings two weeks ago: EPS beat and revenues only missed estimates by a hair, but the stock declined anyway. Third, earnings estimates for this year and next have declined slightly over the past month. Fourth, relative strength has deteriorated: CME is lagging both financials and the broad market. Alone, none of these are enough reason to bail. But together, they paint a picture of a stock that could become trouble soon. So, I’m going to take some profits today, selling a third of our shares for a gain of about 20%. If you’re in a similar situation, I suggest you do the same. Sell a third, Hold the rest.
Next ex-div date: June 7, 2018
SOLD – Cummins (CMI 153 – yield 2.8%) – I sold CMI at last Wednesday’s average price of 148.51, for about breakeven. The stock has been struggling for three months, and the latest drop was the last straw.
Next ex-div date: May 17, 2018
BUY – Intel (INTC 54 – yield 2.2%) – INTC looks healthy, ascending steadily just above its 50-day line. Qualcomm is abandoning efforts to develop server chips that would compete with Intel’s, according to a recent Bloomberg article, cementing Intel’s hold on the market. Earnings estimates are rising and INTC is a good Buy for dividend growth.
Next ex-div date: May 4, 2018
SAFE INCOME TIER
SOLD – 3M (MMM 202 – yield 2.7%) – We sold the final third of our MMM shares at last Wednesday’s average price of 195.22. Our previous defensive sales at higher prices (one at the beginning of and one at the end of April) served us well, and our total return was about 9%. MMM did find support last week and could be starting to rebound, but the stock’s lack of support and multiple overhead resistance levels mean risk is high here.
Next ex-div date: May 17, 2018
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 76 – yield 3.8%) – The utility sector dropped like a rock yesterday after news broke that the U.S. will pull out of the Iran nuclear deal. The news drove oil prices higher, since it cut off some markets’ access to Iranian oil. Rising oil prices tend to contribute to inflation, so a pop in treasury yields followed. That, in turn, triggered the selloff in utilities. ED is now back below its 50-day line, despite reporting estimate-beating earnings a week ago. EPS of $1.38 beat estimates by five cents, and revenue rose 4% to $3.36 billion, beating estimates by $40 million. But the stock’s action is driven not by earnings, but by interest rates and appetite for conservative assets. Hold.
Next ex-div date: May 15, 2018
BUY – Ecolab (ECL 145 – yield 1.1%) – ECL’s reaction to earnings has been positive but subdued. The stock is still trading near all-time highs and can be bought for Safe Income.
Next ex-div date: June 18, 2018
BUY – McGrath RentCorp (MGRC 63 – yield 2.2%) – MGRC continues to march higher following last week’s earnings beat, handing us a 7% gain in just under two weeks. McGrath is a 25-year dividend grower that recently increased its dividend by 31% (funded in part by the tax cut). Earnings growth expectations are strong and momentum is excellent. Buy for safe income.
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 portfolio. 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 232 – 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 45 – yield 3.2%) – Like ED, XEL sold off due to yesterday’s surge in oil prices and interest rates. XEL is still above its 50-day line though. Investors whose primary goal is income can continue to Hold.
Next ex-div date: June 12, 2018 est.
Closing prices as of May 8, 2018
