The broad market looks healthy. The S&P 500 is close to breaking out to new highs, and the Dow is at its highest level since February, propelled by strong performances from industrial and consumer staples stocks. Energy stocks have lagged over the past week, as oil prices declined, but everything else looks healthy.
So, I’m putting four stocks back on Buy today. In the High Yield tier, General Motors (GM) looks like a good bargain. In the Dividend Growth tier, BB&T Corp. (BBT) is near a strong support level, and Broadridge Financial (BR) earns back its buy rating for sheer strength. Finally, in the Safe Income tier, Xcel Energy (XEL) moves back to Buy for long-term investors.
HIGH YIELD TIER
HOLD – AllianceBernstein (AB 30 – yield 8.6%) – AB is working its way back to its July highs. The stock was trading at a 52-week high late last month when Fidelity announced two new zero-expense-ratio mutual funds, triggering a selloff in asset management stocks. 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. The stock dropped precipitously immediately following the announcement but is recovering steadily. 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 5.1%) – CHCT is pulling back normally this week, following a post-earnings surge to new all-time highs 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
BUY – General Motors (GM 37 – yield 4.1%) – As anticipated, GM found support around its March-May lows last week, and has started to bounce back. At this level, the stock could be a good value, especially for investors whose priority is high yield. Sales are still expected to decline this year, in part because of cost increases caused by President Trump’s new tariffs, but revenues are expected to begin to recover in 2019, helping GM’s earnings growth to turn positive again (albeit by low single-digits). GM has been consolidating since October, trading in a wide, sloppy range between about 35 and 47. When GM is near the bottom of this range, as it is now, it’s usually a decent buying opportunity for value-minded investors. Adding to GM’s value bona fides is the stock’s forward P/E ratio of 6.0, and the stock’s yield of 4.1%. I’m going to put GM back on Buy today for volatility-tolerant investors looking for high current yields (note that GM is not currently an annual dividend increaser.)
Next ex-div date: September 6, 2018 est.
HOLD – ONEOK (OKE 67 – yield 4.7%) – Oil prices dropped to their lowest level in two months last week, triggering a sharp pullback in energy stocks, including ONEOK. The stock closed at its lowest level since May, but is already bouncing back. I’ll keep OKE on Hold for now. Note that although ONEOK owns pipelines (as well as natural gas storage and processing facilities) 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: November 2, 2018 est.
BUY – STAG Industrial (STAG 29 – yield 4.9%) – STAG closed at a new all-time high Friday. After the stock’s recent pullback to its 50-day line, STAG has plenty of gas in the tank for a sustained advance. The company is a warehouse REIT that pays monthly dividends. High yield investors can buy some here.
Next ex-div date: August 30, 2018
DIVIDEND GROWTH TIER
BUY – American Express (AXP 105 – yield 1.3%) – AXP just broke out of its four-month trading range to the upside Monday, and is trading at all-time highs. Analysts expect 20% revenue growth this year and 7% growth next year, fueling 24% and 11% EPS growth. Buy some here for dividend growth and short- and medium-term capital gains.
Next ex-div date: October 4, 2018 est.
BUY – BB&T Corp (BBT 53 – yield 2.8%) – BBT bounced off support around 51 early last week, and is looking a little healthier. Revenues are only expected to grow slowly this year and next (2% and 4%) but tax breaks should provide a big 42% boost to earnings this year. Acquisitions could provide a boost to growth though. Regulators recently lowered the amount of cash banks like BB&T have to keep on hand, freeing up capital for acquisitions. Shorter-term investors could nibble here and hold for a rebound North of 55, the top of BBT’s year-to-date trading range, so I’ll put the stock tentatively back on Buy today.
Next ex-div date: November 7, 2018 est.
BUY – Broadridge Financial Solutions (BR 133 – yield 1.5%) – BR is hitting new all-time highs daily. The stock’s 14% post-earnings jump was followed by a short one-week consolidation, which is now supporting a new uptrend. The sheer strength is reason enough to put BR back on Buy today, but if you’re a longer-term investor, try to wait for a pullback. Management just increased the dividend by 33%, to $0.49 per quarter.
Next ex-div date: September 17, 2018
BUY – CME Group (CME 167 – yield 1.7%) – I put CME back on Buy last week, after the stock found support around 159 for the third time. The company is expected to report 14% sales growth and 40% EPS growth this year, and 4% and 6% growth next year. (CME owns major financial exchanges including the Chicago Mercantile Exchange and the Chicago Board of Trade.) The stock still faces overhead resistance at about 172, but its trading range looks increasingly strong, so I’m less worried about downside. Buy here or on another pullback toward 159 for medium- and long-term capital appreciation and dividend growth.
Next ex-div date: September 7, 2018
HOLD – Occidental Petroleum (OXY 79 – yield 3.9%) – After the stock’s big second quarter earnings gap down, OXY held up well during last week’s energy stock selloff. The earnings selloff followed the news that Occidental will increase 2018 capital spending by over $1 billion, to take advantage of higher oil prices. Analysts were surprised by the higher spending estimate, which won’t immediately be offset by higher production. However, the stock has held up well since the selloff, trading sideways instead of giving up more ground. We’ll hold to see if OXY can close the gap in a few days.
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 80 – yield 3.6%) – Long-term interest rates remain below their early-summer peak, creating a reprieve for utility stocks. ED actually surged to its highest level since January last week, before pulling back a bit this week. (The stock is above both its 50- and 200-day moving averages for the first time since January 3.) ED isn’t a fast grower, but the dividend is as stable as they come. Hold for safe income.
Next ex-div date: November 13, 2018 est.
HOLD – Ecolab (ECL 148 – yield 1.1%) – ECL has remained above its 50-day since reporting second-quarter earnings, and is consolidating close to the top of its trading range. The stock faces overhead resistance at 150 but is a Dividend Aristocrat with a 32-year history of dividend growth. Ecolab sells cleaning and other products to the foodservice, hospitality and industrial sectors (among others) and a high percentage of revenues are recurring, creating a highly stable income stream. Analysts expect 7% sales growth and 15% EPS growth this year, and 6% and 13% growth next year.
Next ex-div date: September 17, 2018 est.
BUY – Invesco Preferred ETF (PGX 15 – 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: September 14, 2018 est.
BUY – McCormick & Co (MKC 124 – yield 1.7%) – After advancing for seven trading days in a row (closing at new all-time highs on each of them) MKC finally pulled back significantly yesterday. Stocks of most food companies declined after J.M. Smucker (SJM) issued lower-than-expected guidance. McCormick’s stock still looks very healthy—in fact, a longer pullback to the 50-day line, currently at 116, might be in order. Use it as a buying opportunity. MKC is in a strong uptrend, spent four weeks consolidating before the recent move, is expected to report 13% sales growth and 17% EPS growth this year, and has a 31-year history of dividend growth.
Next ex-div date: October 5, 2018 est.
HOLD – McGrath RentCorp (MGRC 58 – yield 2.3%) – MGRC has been behaving well for the past week, after finding support around 58 last week. 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 262 – yield 1.4%) – UNH is behaving very well, trending up just above its 50-day line, close to all-time highs. 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.
BUY – Xcel Energy (XEL 48 – yield 3.0%) – XEL broke out to its highest level of the year last week, before pulling back normally Monday. The stock is trending up and is above both its 50- and 200-day moving averages. While interest rates are expected to rise in the second half of this year, utilities are telegraphing little concern, and I’m going to put XEL back on Buy today for Safe Income investors. Use this pullback to start new long-term positions.
Next ex-div date: September 11, 2018 est.
Closing prices as of August 21, 2018
