After a strong late-summer advance, the stock market has started September with a small pullback. The big picture is still bullish though, with more stocks hitting new highs than new lows.
The Dow has been lagging the Nasdaq and S&P 500, and was the only one of the major indexes not to hit a new all-time high last week. But many conservative stocks continue to act well, including utilities and some REITs.
A broad-based advance like this one is a sign of a strong market, so if you’re underinvested, it’s time to come off the sidelines. Most of the stocks in our portfolio are healthy, and I’m putting one more, Ecolab (ECL), back on Buy today.
HIGH YIELD TIER
HOLD – AllianceBernstein (AB 30 – yield 8.6%) – After making it back to its July high last Monday, AB corrected with the rest of the financial sector last week. The stock is now pulling back normally toward its 50-day line, currently around 29.50. 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 31 – yield 5.2%) – CHCT is pulling back toward its 50-day moving average, currently around 30. Last month, the stock hit a new all-time high after reporting revenue growth of 39% in the second quarter. Management also increased the dividend 0.6%, to 40.25 cents per quarter. The current pullback presents a good opportunity to buy CHCT, a health care REIT, 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: November 15, 2018 est.
BUY – General Motors (GM 36 – yield 4.3%) – GM is near the bottom of its trading range again after President Trump rejected the European Union’s offer to eliminate tariffs on cars if the U.S. did the same. In addition, although the company no longer announces monthly sales numbers, Bloomberg reported yesterday that GM’s sales fell more than expected in August, according to sources. The stock has pulled back toward 35 again, where it offers great 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).
Next ex-div date: September 6, 2018
HOLD – ONEOK (OKE 66 – yield 4.8%) – We sold a third of our ONEOK shares last Wednesday, at the day’s average price of 67.03, for a profit (price-only) of about 24%. The stock has pulled back further since, as falling oil prices drag down energy stocks. After dropping through its 50-day line at the start of August and then pulling back further last week, OKE’s medium-term trend is now down. However, the stock is still above its 200-day, and earnings estimates are fairly firm. It looks like OKE simply ran too far too fast, especially for a stock that is mostly a yield play, and is now correcting. A pullback to the 200-day, currently above 61, would bring our profit down to about 13%. Do the math in your own portfolio, and decide if you want to sell some more shares here or continue to hold on for yield.
Next ex-div date: November 2, 2018 est.
BUY – STAG Industrial (STAG 28 – yield 5.0%) – STAG is trading near all-time highs, and looks strong. However, a pullback is probably in order soon, especially if interest rates continue to rise (the jobs report is due out Friday). I still like the stock, a warehouse REIT that pays monthly dividends, but try to buy on pullbacks.
Next ex-div date: September 27, 2018 est.
DIVIDEND GROWTH TIER
BUY – American Express (AXP 107 – yield 1.3%) – After hitting a series of new all-time highs, AXP pulled back slightly at the end of last week. The stock just broke out of a four-month trading range to the upside, so it’s not overextended yet (except in the very short term). AXP is a Buy right here. Analysts are expecting revenues to grow 20% this year and 7% next year, fueling 24% and 11% EPS growth.
Next ex-div date: October 4, 2018 est.
BUY – BB&T Corp (BBT 52 – yield 2.9%) – BBT remains one of the weaker stocks in our portfolio, chopping around between its 50- and 200-day moving averages. But the stock has solid support down at 50, so it’s a decent longer-term Buy for value oriented investors, or, in the shorter-term, for a bounce back to 55. 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, while acquisitions could provide a boost to growth.
Next ex-div date: November 7, 2018 est.
BUY – Broadridge Financial Solutions (BR 137 – yield 1.4%) – BR still looks healthy. After surging 14% after reporting earnings early this month, the stock spent a week consolidating, and then returned to its gradual, long-term uptrend. Broadridge is the largest investor communications firm in the U.S., and delivers steady single-digit sales growth every year. EPS are expected to rise by about 10% this year and next, and management recently increased the dividend by 33%, to $0.49 per quarter. Buy on pullbacks.
Next ex-div date: September 17, 2018
BUY – CME Group (CME 177 – yield 1.6%) – CME broke out of its six-month trading range to the upside last week, and is trading at all-time highs. This is a strongly bullish development and CME is likely to tack on more gains from here. The stock can be bought on normal small pullbacks.
Next ex-div date: September 7, 2018
BUY – CSX Corp. (CSX 75 – yield 1.2%) – CSX was added to the Dividend Growth tier at the stock’s average price of 74.32 last Thursday, on a small pullback. CSX is the third-largest U.S. railroad and recently underwent a major transformation, switching to a point-to-point system and boosting margins, cash flow and profits. CSX has paid dividends every year since 1981, and has increased the dividend for eight years in a row. Over the past five years, the dividend increases have averaged 8%. CSX only yields 1.2% at current prices, but the company’s payout ratio of 25% leaves plenty of room for growth. The stock is extended, but is in a strong uptrend that is likely to continue as long as transport stocks and the broad market remain strong. Longer-term investors can try to buy on a pullback to the 50-day, currently at 70. Shorter-term investors can buy here.
Next ex-div date: November 29, 2018 est.
HOLD – Occidental Petroleum (OXY 79 – yield 3.9%) – OXY pulled back this week as oil prices slumped. The stock has been aimless since its earnings selloff early last month, a reaction to management’s higher capital spending plans. It’s above its 200-day though, and hasn’t fallen below the low from the day after earnings. Hold.
Next ex-div date: September 7, 2018
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: October 4, 2018 est.
HOLD – Consolidated Edison (ED 80 – yield 3.6%) – ED looks healthy. Despite rising interest rates, the stock has advanced slightly, and is above its 50- and 200-day lines. I’ll keep an eye on utilities’ reaction to Friday’s jobs report, and consider putting ED back on Buy next week. Hold for safe income.
Next ex-div date: November 13, 2018 est.
BUY – Ecolab (ECL 151 – yield 1.1%) – ECL inched out of its trading range over the past week—not exactly the definitive breakout I was looking for, but still a sign of strength. The stock has remained above its 50-day since reporting second-quarter earnings and is gradually trending up. I think long-term investors can now start to accumulate ECL on pullbacks, so I’ll put the stock back on Buy today. Ecolab is a Dividend Aristocrat with a 32-year history of dividend growth that sells cleaning and other products to the foodservice, hospitality and industrial sectors (among others). 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
BUY – Invesco Preferred ETF (PGX 15 – yield 5.7%) – PGX is an ETF that holds preferred shares (a type of debt) 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 126 – yield 1.6%) – After consolidating around 124 for a week or so, MKC has bounced back to 126 and is likely to continue its advance from here. You can Buy MKC here for dividends and capital gains, the company 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 57 – yield 2.4%) – MGRC looks like it may be leveling out above its 200-day, currently at 55.50. The company’s second-quarter results were excellent and revenues and earnings are expected to grow 5% and 36% this year, respectively. Still, the stock has been below its 50-day line since July, so if it breaks the 200-day and falls to new lows we’ll sell some of our shares to reduce risk. For now, Hold.
Next ex-dividend date: October 15, 2018 est.
BUY – UnitedHealth Group (UNH 269 – yield 1.3%) – UNH is near all-time highs and is healthy, trending up steadily 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. Buy on pullbacks for Safe Income. Note that UNH trades ex-dividend tomorrow.
Next ex-div date: September 6, 2018
BUY – Xcel Energy (XEL 49 – yield 3.0%) – XEL continues to trend up, despite rising interest rates and the broad market’s strength. The stock is above both its 50- and 200-day moving averages and looks healthy. Long-term investors whose primary goal is safe income can Buy on pullbacks.
Next ex-div date: September 13, 2018
Closing prices as of September 4, 2018
