The yield on the 10-year Treasury rose over 3.1% last week following several strong economic releases and a handful of speeches by current and incoming Fed members. That’s kept utilities and other high-yield investments depressed for another week.
In the rest of the stock market, last week was somewhat choppy but quiet overall, and the major indexes ended the week pretty much flat. Our market timing expert, Mike Cintolo, called the action “totally acceptable” but noted that he needs to see an upmove soon to confirm that the January-May market correction is over.
So, we’re still pretty much in wait-and-see mode, but are cautiously optimistic. Most of our holdings are looking constructive, with AllianceBernstein (AB), American Express (AXP), BB&T Corp. (BBT) and UnitedHealth (UNH) all potentially on the cusp of big breakouts. If you’re looking for more of a sure thing, Broadridge (BR), Intel (INTC) and McGrath RentCorp (MGRC) remain in strong uptrends. As always, don’t hesitate to reach out to chloe@cabotwealth.com with any questions.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 28 – yield 9.0%) – AB has had a great week. The stock advanced on each of the last five trading days and broke out to a new 52-week high Friday. 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 38 – yield 4.0%) – GM popped back above its 50-day line last week, then got another boost after China lowered tariffs on imported cars yesterday (reportedly to 15%, from 25%). Most of the cars GM sells in China are also made in China, but the news is seen as a positive for U.S. automakers. Possibly more importantly for GM, China also lowered tariffs on imported car parts from 10% to 6%. Hold.
Next ex-div date: June 7, 2018
BUY – ONEOK (OKE 66 – yield 4.8%) – After a two week advance that brought the stock to 52-week highs, OKE has paused to consolidate. That’s perfectly normal, and I’m going to keep the stock on Buy for high yield investors. As I noted last week, OKE might look a little overextended short-term, but the stock’s breakout follows a 15-month consolidation, so the rally is likely just getting started. Note that although ONEOK is a pipeline company, 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%) – After being repelled at its 200-day moving average two weeks ago, STAG found support at 25.50 and is heading back up. STAG is an industrial REIT that mostly owns warehouses, which are in high demand from e-commerce companies competing to fulfill orders faster. The stock pays monthly distributions that don’t qualify for the lower dividend tax rate. High-yield investors can buy some here.
Next ex-div date: May 30, 2018
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 103 – yield 1.4%) – AXP hit a new 52-week high yesterday—just barely. It’s not a confirmed breakout, but the stock’s range is rising and tightening, so we could get one any day. AmEx is one of the financial institutions that will lose its “systematically important” designation under the Dodd-Frank rollback that’s likely to become law this week, giving the company more freedom and likely providing a nice tailwind to the stock. I’d put the stock back on Buy on a breakout or another successful test of the 50-day moving average. Hold.
Next ex-div date: July 5, 2018
HOLD – BB&T Corp (BBT 56 – yield 2.7%) – BB&T is another beneficiary of the Dodd-Frank rollback heading to the President’s desk. The stock is trading less than a dollar off its 52-week highs, so a breakout is a possibility here, too. For now, Hold.
Next ex-div date: August 8, 2018 est.
BUY – Broadridge Financial Solutions (BR 114 – yield 1.3%) – Broadridge continues to consolidate just under recent all-time highs. Broadridge, which provides investor communication tools and other technology and services to financial companies, has increased its dividend each of the past 10 years. BR is a Buy for dividend growth.
Next ex-div date: June 14, 2018
HOLD – Carnival (CCL 65 – yield 3.1%) – The stock is still stuck in neutral, but CCL remains above its April-May lows around 63. Carnival is the world’s largest cruise company, with 10 different cruise lines tailored to a range of customers from around the world. Analysts currently expect CCL to deliver 9% revenue growth and 16% EPS growth this year, and 8% revenue growth and 15% EPS growth next year. If you own CCL, hang on.
Next ex-div date: May 24, 2018
HOLD – CME Group (CME 161 – yield 1.7%) – After bouncing twice around 155, CME is back near (though still below) its 50-day moving average. I’d like to see the stock get back above that line and resume its uptrend before putting it back on Buy.
Next ex-div date: June 7, 2018
BUY – Intel (INTC 54 – yield 2.2%) – Intel made a run at a new 52-week high on Thursday, but pulled back Friday. Our options guru, Jacob Mintz, who is long INTC via a bull call spread, attributed to the pullback to the choppiness in the market, writing Monday: “This choppiness can be tough to watch. Just when you think a position or a portfolio is finally going to break out, it gets pulled back into the market malaise.” But INTC still looks healthy, ascending steadily just above its 50-day line. Earnings estimates are rising and INTC is a good Buy for dividend growth.
Next ex-div date: August 3, 2018 est.
SAFE INCOME TIER
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 designated 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 its individual bond holdings mature and 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 74 – yield 3.9%) – After peaking above 3.11% last week, the yield on the 10-year treasury has come down somewhat. The Iran nuclear deal has faded from the headlines, replaced by news about Chinese tariffs and the North Korean summit. However, oil prices remain elevated (close to their highest level since 2014) and recent economic data has been strong—both contribute to faster inflation. The trend in interest rates is firmly up, so utilities may stay out of favor for a while. If you haven’t taken some profits in ED yet, consider doing so now.
Next ex-div date: August 13, 2018 est.
BUY – Ecolab (ECL 147 – yield 1.1%) – ECL continues to consolidate just under all-time highs. Its 50-day moving average, currently at 143, is starting to catch up. Buy for Safe Income.
Next ex-div date: June 18, 2018
BUY – McGrath RentCorp (MGRC 64 – yield 2.1%) – MGRC’s uptrend remains healthy; the stock is about 11% above its 50-day moving average. McGrath rents modular offices, classrooms, and more, and has a 25-year history of dividend growth. EPS are expected to rise by 32% this year and 9% next year. 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: June 15, 2018 est.
HOLD – UnitedHealth Group (UNH 245 – yield 1.2%) – After a few weeks of post-earnings consolidation, UNH bounced off its 50-day line two weeks ago, and has been moving higher since. The stock is now at its highest level since January, and a breakout is starting to look like a possibility. Hold.
Next ex-div date: June 14, 2018 est.
HOLD – Xcel Energy (XEL 44 – yield 3.3%) – XEL remains below its 50-day line, and has pulled back almost to its March low around 43. A renewed uptrend in XEL may have to wait a while, but investors whose primary goal is income can continue to Hold.
Next ex-div date: June 12, 2018 est.
Closing prices as of May 22, 2018
