We continue to see an unusual amount of rotation in the market, with crosscurrents sending sectors up one day and down the next. However, our portfolio looks healthy. The rotation in consumer staples continues, and recent addition McCormick & Co. (MKC) hit a new all-time high this week, as did UnitedHealth Group (UNH).
Our REITs are also performing well: Community Health Trust (CHCT) hit a new all-time high yesterday and STAG Industrial (STAG) is at its highest level since December. Elsewhere, I’m putting CME Group (CME) back on Buy today, but moving Occidental Petroleum (OXY) to Hold following a poor reaction to earnings.
HIGH YIELD TIER
HOLD – AllianceBernstein (AB 30 – yield 8.6%) – AB has recovered nicely from its Fidelity-inspired selloff. Fidelity recently slashed fees on several of its products and introduced two new mutual funds with zero expense ratios, the latest moves in a race to lower costs in the asset management industry. AllianceBernstein, which is known for its active management, is unlikely to be as affected by the new competition from lower-cost competitors, like Vanguard, Schwab and Invesco. In other news, AllianceBernstein’s assets under management rose to $546 billion in July, from $540 billion in June. Hold.
Next ex-div date: November 1, 2018 est.
BUY – Community Health Trust (CHCT 32 – yield 5.0%) – CHCT hit a new all-time yesterday, following up on a nice post-earnings surge last week. 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. CHCT, a health care REIT, can be bought here for high yield and short- to medium-term growth. Just make sure you understand the taxes involved in owning REITs (there’s plenty of information available on your subscriber website if you want a refresher.)
Next ex-dividend date: August 16, 2018
HOLD – General Motors (GM 36 – yield 4.2%) – After a three-day pullback, GM is at its lowest level since May 3. The stock has solid support just a few points below here and at this level, it yields a generous 4.2% and has a forward P/E ratio of 6.0. Short term, GM is facing lackluster U.S. demand and rising commodity costs caused by President Trump’s trade war. Earnings are currently expected to fall by about 9% this year. However, revenues are expected to begin to recover in 2019, helping GM’s earnings growth turn positive again (albeit by low single-digits). Then, over the next five years, analysts think EPS could increase by an average of 10% per year. Hold for high yield and a bounce-back toward 45.
Next ex-div date: September 6, 2018 est.
HOLD – ONEOK (OKE 69 – yield 4.6%) – OKE has mostly traded sideways since its post-earnings drop, so I’ll keep it on Hold. 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. Although revenue of $2.96 billion was 8% higher year-over-year, it missed estimates.
Next ex-div date: November 2, 2018 est.
BUY – STAG Industrial (STAG 28 – yield 5.1%) – STAG has held its post-earnings gains and is trading at its highest level since December (before interest rate shocks caused a sharp pullback in REITs). In the second quarter, 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 is trading near the top of its four-month trading range. The stock faces overhead resistance above 102 but has solid support around 95. The stock has largely recovered from its bad-publicity pullback, triggered by a Wall Street Journal article that said AmEx recruited small- and mid-size business customers by offering them competitive currency conversion rates, but later raised the rates without warning. AXP is a Buy for steady dividends and growth. For better short-term results, buy on a definitive breakout past 102 or a pullback toward 95.
Next ex-div date: October 4, 2018 est.
HOLD – BB&T Corp (BBT 52 – yield 2.9%) – BBT continues to muddle around near the bottom of its year-to-date trading range. We already took some profits, so I’ll continue to Hold a half position.
Next ex-div date: November 7, 2018 est.
HOLD – Broadridge Financial Solutions (BR 130 – yield 1.5%) – BR looks impeccable. The stock jumped 14% after reporting third-quarter earnings last week, and has held the gains, trading in a tight consolidation range around 130. Earnings included 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. Hold.
Next ex-div date: September 17, 2018
BUY – CME Group (CME 166 – yield 1.7%) – CME is back in the middle of its trading range and I think support has proven strong enough to put the stock back on Buy here. The stock is a few points above its 200-day line, around 158. CME faces overhead resistance at about 172. Buy for medium- and long-term capital appreciation and dividend growth.
Next ex-div date: September 7, 2018
HOLD – Occidental Petroleum (OXY 80 – yield 3.9%) – Occidental reported second-quarter results after the close last Wednesday, and the stock gapped down about 2% the next morning. Revenues met estimates, thanks to rising production and higher prices in the chemicals segment. However, management is accelerating the development of some high-return projects to take advantage of higher oil prices, which will increase 2018 capital spending from an estimated $3.9 billion to about $5 billion. Analysts were surprised by the higher spending estimate, which won’t immediately be offset by higher production. It’s possible the gap down has created a “floating island,” a chart pattern that signals a trend reversal, but we’ll wait to see if OXY can close the gap in a few days. For now, I’m moving OXY to Hold, since the stock breached support at 81 (it’s still above its 200-day line, currently at 75).
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’s sideways range has gotten a little less choppy, but the stock remains stuck between its 50- and 200-day lines. 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: November 13, 2018 est.
HOLD – Ecolab (ECL 147 – yield 1.1%) – ECL has pulled back slightly from the top of its trading range. The chemical company reported solid second-quarter earnings two weeks ago and has been above its 50-day line since. 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 122 – yield 1.7%) – MKC closed at a new all-time high yesterday. The stock looks very healthy, after gapping up in late June MKC spent four weeks consolidating before the recent move. McCormick was added to the Safe Income tier three 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 principal 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 2.4%) – MGRC found some support this week, around 58. The stock is still above its 200-day, currently at 55, and the company’s second-quarter results were excellent: revenues and EPS were up 7% and 35%, respectively. MGRC remains a Hold.
Next ex-dividend date: October 15, 2018 est.
BUY – UnitedHealth Group (UNH 263 – yield 1.4%) – UNH is behaving very well, trending up just above its 50-day line, and hit a new all-time high yesterday. 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. Also, UnitedHealth is reportedly in talks to buy specialty pharmacy operator Genoa Health and may also be bidding for health technology company athenahealth (ATHN). UNH is a solid Buy for Safe Income.
Next ex-div date: September 6, 2018 est.
HOLD – Xcel Energy (XEL 47 – yield 3.0%) – XEL has been trending up since reporting strong second-quarter earnings three weeks ago, and is above both its 50- and 200-day moving averages. The stock has better momentum than I’ve seen from it in months, and I could put it back on Buy soon, ideally on a small pullback. For now, Hold.
Next ex-div date: September 11, 2018 est.
Closing prices as of August 14, 2018
