This earnings season has seen some huge reactions, and this week brought the drama to our portfolio. While some of the selloffs (and jumps) were quite sharp, I think it’s important not to overreact just yet. If any of our stocks’ longer-term trends have changed, we’ll get a signal soon. Broadridge (BR) is actually a good example: the stock dropped sharply last week, slicing through its 200-day line, and I took profits on one-third of our position. However, I’m glad we still own the rest: the stock jumped 14% after reporting earnings yesterday. (Management also just handed us a 33% dividend increase.)
I am moving AllianceBerstein (AB) and ONEOK (OKE) to Hold today: the former because of an industry-wide selloff and the latter because of a negative reaction to earnings.
HIGH YIELD TIER
HOLD – AllianceBernstein (AB 29 – yield 8.8%) – Asset management stocks dropped last week after Fidelity slashed fees on several of its products and introduced two new mutual funds with zero expense ratios. The two new funds—Fidelity Zero Total Market Index Fund and Fidelity Zero International Index Fund—will be available with no fees to retail investors with Fidelity accounts. Fidelity also lowered fees on some other funds, slashed account fees, got rid of investment minimums on Fidelity retail mutual funds and lowered their minimum balance to open an account to zero. The moves are the latest in a race to lower costs in the asset management industry, with Fidelity and Vanguard leading the way. AllianceBernstein, which is known for its active management, is unlikely to be as affected by the new competition as lower-cost competitors like Vanguard, Schwab and Invesco. Still, the high volume drop through the 50-day is a red flag, so I’ll put the stock on Hold for now. A timely recovery would re-earn the stock its Buy rating.
Next ex-div date: November 1, 2018 est.
BUY – Community Health Trust (CHCT 31 – yield 5.2%) – Community Healthcare Trust reported earnings after the close yesterday. Revenue growth of 39%, to $12.4 million, beat estimates, while FFO of $0.40 per share met the consensus estimate. Management also increased the dividend 0.6%, to 40.25 cents per quarter.
Next ex-dividend date: August 16, 2018
HOLD – General Motors (GM 38 – yield 4.0%) – GM is still trading sideways near the bottom of its trading range after gapping down following its second-quarter earnings announcement two weeks ago. Management lowered their full-year earnings guidance to reflect higher commodity costs and changes in foreign exchange rates. The remains volatile, news-driven and range-bound, but it has decent support a few points below here, the dividend is solid, and the long-term growth potential of GM’s mobility investments is strong. Risk-tolerant high yield investors can continue to Hold.
Next ex-div date: September 6, 2018 est.
HOLD – ONEOK (OKE 68 – yield 4.7%) – OKE dropped through its 50-day line after reporting second-quarter earnings last Wednesday. EPS of $0.68 beat the consensus estimate by one cent and were more than twice as high as in the same quarter last year. But although revenue of $2.96 billion was 8% higher year-over-year, it missed estimates. The tone on ONEOK’s earnings call was positive, and management increased their full-year net income and EBITDA guidance numbers, citing higher volumes and NGL spreads. I’m going to put the stock on Hold today, since the drop was fairly large and the stock is still below its 50-day moving average, but I’d be surprised if this turned into a longer correction, since ONEOK’s business is still quite strong Hold.
Next ex-div date: November 2, 2018 est.
BUY – STAG Industrial (STAG 28 – yield 5.1%) – STAG is up nicely since reporting earnings a week ago. Core FFO of $0.45 beat estimates by one cent and rose 10% year-over-year. Revenue was also higher year-over-year and beat estimates nicely. After the stock’s recent pullback to its 50-day line, this bounce looks like a good start to STAG’s next advance. High yield investors can buy some here.
Next ex-div date: August 30, 2018
DIVIDEND GROWTH TIER
BUY – American Express (AXP 102 – yield 1.4%) – AXP has already started to bounce back from its bad-publicity pullback. The Wall Street Journal reported last week that AmEx recruited small- and mid-size business customers by offering them competitive currency conversion rates, but later raised the rates without warning. An AmEx spokeswoman told the WSJ that AmEx never told customers their rates were fixed, and defended their practices as “transparent,” and the story seems to have blown over for now. AXP is trending up gradually, if choppily, above its 200-day line and is could break through overhead resistance above 102 any day now. I’ll keep it on Buy for steady dividends and growth.
Next ex-div date: October 4, 2018 est.
HOLD – BB&T Corp (BBT 52 – yield 2.9%) – BBT remains below its 200-day but is attempting to recover, so I’ll continue to Hold a half position. BBT fell to a new six-month low two weeks ago, but if it can pull back above its 200-day line and stay there I’ll keep it in the portfolio. If it falls to new lows instead, I’ll sell the rest of our shares.
Next ex-div date: August 9, 2018
HOLD – Broadridge Financial Solutions (BR 129 – yield 1.5%) – BR jumped 14% after reporting third-quarter earnings yesterday, despite missing EPS estimates. Revenue of $1.32 billion was in-line with estimates but EPS of $1.86 were a cent short, although they rose 9% year-over-year. Broadridge did announce a superb 33% dividend increase, to $0.49 per quarter, boosting the stock’s yield from 1.1% to 1.5%. Management also raised their full-year EPS guidance, in part because of recent investments that they expect to drive growth going forward. Amid a rally in tech stocks, analysts seized on the good parts of the announcement, and drove BR to a new all-time high yesterday. I sold a third of our BR shares at last Wednesday’s average price of 112.62, for a 47% profit (not including dividends) and now I’ll Hold the rest for further gains.
Next ex-div date: September 17, 2018
HOLD – CME Group (CME 163 – yield 1.7%) – CME found support a few points above its 200-day line this week and is rebounding. The company’s second-quarter earnings report, announced two weeks ago, saw EPS and revenue top estimates, but the stock declined anyway, possible reacting to a slow start to the third quarter. If all is well, CME should stay above its 200-day moving average and within the 155-175 trading range it has established over the past six months. Hold.
Next ex-div date: September 7, 2018 est.
BUY – Occidental Petroleum (OXY 82 – yield 3.8%) – Occidental will report second quarter results after the close today, and hold its earning call tomorrow morning, August 9. Analysts’ expectations are high: 17.9% revenue growth, to $4.25 billion, and a ridiculous 700% increase in EPS, from 0.15 to 1.21. OXY is consolidating after a big gap up in May, with support around 81 and upside resistance at 87. I’ll keep the stock on Buy for now, although you may want to keep positions smaller than usual until after earnings.
Next ex-div date: September 7, 2018 est.
SAFE INCOME TIER
BUY – Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.4%)
BUY – Invesco BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.8%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
BUY – Invesco BulletShares 2022 High Yield Bond ETF (BSJM 25 – yield 5.3%)
The BulletShares funds make up our bond ladder, which is a conservative strategy for generating a steady income stream by buying a series of individual bonds or defined-maturity bond funds that mature in successive years. Because the BulletShares funds are short-term and mature at the end of the year in their name (at which point Invesco disburses the net asset value, or NAV, 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. Invesco is also introducing a new series of BulletShares funds that hold municipal bonds, which may be of interest to some investors.
Next ex-div dates: September 4, 2018 est.
HOLD – Consolidated Edison (ED 79 – yield 3.6%) – ED continues to trade—choppily—between its 50- and 200-day lines. The utility reported second-quarter earnings Thursday, but as usual, the stock didn’t have much of a reaction. EPS of $0.61 beat estimates by five cents, and were up 5% year-over-year. Revenue rose slightly, to $2.7 billion, beating estimates by $40 million. ED isn’t a fast grower, but the dividend is as stable as they come. The stock is trending sideways short-term, but it remains a solid long-term Hold for safe income.
Next ex-div date: August 13, 2018 est.
HOLD – Ecolab (ECL 149 – yield 1.1%) – ECL has surged back to the top of its trading range over the past week after reporting solid second-quarter earnings last Tuesday. EPS of $1.27 were in line with analysts’ estimates, and up 12% from the second quarter of 2017. Revenues rose 7% to $3.69 billion, but missed estimates by a hair. On the call, management raised their full-year guidance slightly, said pricing is starting to catch up to higher raw materials costs and confirmed that they’re considering a range of acquisitions. Hold for income; Ecolab is a Dividend Aristocrat with a 32-year history of dividend growth.
Next ex-div date: September 17, 2018 est.
BUY – Invesco Preferred ETF (PGX 14 – yield 5.8%) – 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, depending on the direction of interest rates. Buy under 15 for a good store of value and regular income.
Next ex-div date: August 15, 2018 est.
BUY – McCormick & Co (MKC 121 – yield 1.7%) – MKC surged to a new all-time high this week. The move follows a tight four-week consolidation that could serve as a strong launching pad for a new uptrend. McCormick was added to the Safe Income tier two weeks ago, around 119. The spice and flavoring company is a reliable cash cow, with a big industrial business as well as major consumer brands like Old Bay and Frank’s RedHot. Consumer staples stocks were dogs for most of the first half of this year, but have been among a the group of leaders since June. McCormick is also a Dividend Aristocrat, boating a 31-year history of dividend growth plus a 9% dividend growth rate over the past decade. Safe income investors can Buy here.
Next ex-div date: October 5, 2018 est.
HOLD – McGrath RentCorp (MGRC 58 – yield 2.3%) – McGrath’s post-earnings bounce was short-lived, as the stock’s correction has continued. The company’s second-quarter results beat estimates, with revenues and EPS up 7% and 35%, respectively. But the stock continues to pull back. I’ll keep it on Hold for now and watch for it to find support when it meets up with its 200-day moving average, now at 54.
Next ex-dividend date: October 15, 2018 est.
BUY – UnitedHealth Group (UNH 258 – yield 1.4%) – UNH still looks healthy, trending up just above its 50-day line. The company has an eight-year history of dividend growth and has increased its dividend by 26% per year, on average, over the past five years. UNH is a solid Buy for Safe Income.
Next ex-div date: September 6, 2018 est.
HOLD – Xcel Energy (XEL 47 – yield 3.1%) – XEL has been trending up since reporting strong second-quarter earnings two weeks ago, and is now solidly back above its 200-day moving average. The stock has better momentum that I’ve seen from it in months, and I could put it back on Buy soon. For now, Hold.
Next ex-div date: September 11, 2018 est.
Closing prices as of August 7, 2018
