The Nasdaq sold off sharply last week, but the selling was limited to growth stocks, and, like the Dow, our portfolio was largely unscathed. Bigger picture, the selloff followed a strong advance and is no reason to panic—yet. If this is the start of a longer correction, the market will send us more signals soon.
Elsewhere, Friday’s strong jobs report has contributed to a steady advance in interest rates, the 10-year Treasury yield is closing in on 3% once again. But interest-rate sensitive stocks are holding firm, buoyed by a rotation into conservative investments. Some of our strongest holdings right now are the “safest,” like consumer staples company McCormick (MKC) and chemical company Ecolab (ECL). Utilities are also looking bullish, and I’m moving Consolidated Edison (ED) back to Buy today.
I’m also putting AllianceBernstein (AB), which is trading near 52-week highs, back on Buy, though General Motors (GM) is going to Hold due to recent weakness.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 30 – yield 8.5%) – Financials held up well to last week’s selloff, and AB is back near virgin turf. The stock has good support from its 50-day line, currently around 29.70. I think high-yield investors looking to add exposure can buy a little here, so I’ll put AB back on Buy today. A breakout past 31 would be very bullish. AllianceBernstein’s assets under management rose to $546 billion in July, from $540 billion in June.
Next ex-div date: November 1, 2018 est.
BUY – Community Health Trust (CHCT 31 – yield 5.3%) – CHCT has pulled back just to its 50-day moving average, where it should find support if all is well. 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 our subscriber website if you want a refresher.)
Next ex-dividend date: November 15, 2018 est.
HOLD – General Motors (GM 34 – yield 4.5%) – GM has declined on each of the past 10 trading days, falling to its lowest point since last June. The stock is now below support at 35, but could still find support around 32.50. I’ll move it to Hold today while we wait to see if that happens. As a reminder, we’ve already sold two-thirds of our position at higher prices, and still have a 25% total return in the remaining position, so our risk is limited. If you have a loss, consider cutting it short at a reasonable level. GM’s earnings are still expected to decline this year, in part because of cost increases caused by 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 65 – yield 4.9%) – As I wrote last week, OKE is in a medium-term downtrend, correcting after a big run-up earlier this year. At this point the stock looks likely to pull back to its 200-day, currently at 61.80. We already sold a third of our shares two weeks ago, for a profit (price-only) of about 24%. Earnings estimates remain fairly firm, and the stock’s nearly 5% yield remains competitive, so we’ll Hold the rest of our shares. But I recommend you do the math in your own portfolio and decide where your personal loss limit is, and if you want to sell some 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 still trading near all-time highs, despite a pop in interest rates over the past two weeks. The stock has been consolidating its recent gains for three weeks now, which reduces the odds of a significant pullback, so I think high yield investors can buy a little here. STAG is a warehouse REIT that pays monthly dividends.
Next ex-div date: September 27, 2018 est.
DIVIDEND GROWTH TIER
BUY – American Express (AXP 108 – yield 1.3%) – AXP dropped slightly last week after the Wall Street Journal reported that the FBI is investigating the company’s foreign-exchange pricing practices. The Journal reported in July that AmEx regularly increased foreign exchange costs without warning customers, but AmEx says they did nothing wrong. Most importantly, the stock recovered quickly, and is back near all-time highs. The stock just broke out of a four-month trading range to the upside, so it’s not overextended yet and can be bought 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 between 50 and 55. 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 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.
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 earnings early this month, the stock spent a week consolidating, and then returned to its gradual, long-term uptrend. The company 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 173 – yield 1.6%) – CME dropped last Wednesday after the financial exchange operator reported that average daily trading volume was flat in the second quarter, however, the stock began to rebound the very next day. Metals, forex, agricultural and interest rate trading volumes all rose year-over-year, but a drop in equity index volumes and a big drop in energy volumes dragged down overall results. Options volume was steady. CME recently broke out of a six-month trading range to the upside, and is still trading near all-time highs. The stock can be bought on normal pullbacks.
Next ex-div date: September 7, 2018
BUY – CSX Corp. (CSX 74 – yield 1.2%) – CSX is consolidating after its powerful advance to 75. The company is the third-largest U.S. railroad and recently underwent a major transformation, switching to a point-to-point system that boosted 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 not undervalued, but it’s in a strong uptrend that is likely to continue as long as transport stocks and the broad market remain strong. Buy here or try for a pullback to the 50-day, currently at 71.
Next ex-div date: November 29, 2018 est.
HOLD – Occidental Petroleum (OXY 77 – yield 4.0%) – OXY finally met up with its 200-day moving average last week, and support there is holding for now. Occidental is a Houston-based oil and gas company with a large chemicals business. Revenues are expected to rise 28% this year and 10% next year. The company has paid dividends consistently since 1982, and has increased the dividend every year since 2003. 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.
BUY – Consolidated Edison (ED 80 – yield 3.6%) – ED looks healthy. Despite rising interest rates, the stock has advanced slightly in recent weeks, and is above its 50- and 200-day lines. I think investors looking to start new long-term positions in safe, income-generating stocks can buy some here. Interest rate futures market participants think the Fed is probably almost done hiking rates, with only one or two more rate hikes priced in between September (when a rate hike is all but guaranteed) and 2020. I’ll move ED back to Buy today.
Next ex-div date: November 13, 2018 est.
BUY – Ecolab (ECL 155 – yield 1.1%) – After sneaking past overhead resistance at 150 last week, ECL took off and has climbed almost all the way to 155 in a powerful five-day advance. Ecolab is a Dividend Aristocrat in a non-cyclical industry and does well when more growth-oriented sectors are struggling. (The company sells cleaning and other products to the foodservice, hospitality, health care and industrial sectors). Buy on pullbacks for capital appreciation and safe income.
Next ex-div date: September 17, 2018
BUY – Invesco Preferred ETF (PGX 14 – yield 5.8%) – 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 130 – yield 1.6%) – As expected, MKC’s weeklong consolidation was followed by a renewed surge past resistance at 126 and on to 131. Like ECL, the stock is benefitting from a rotation into conservative, non-cyclical names, like blue-chip consumer staples stocks. Buy MKC on pullbacks 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 55 – yield 2.5%) – MGRC sliced through its 200-day Monday, but volume was light, and the stock started to rebound yesterday. Our loss is still small, at 6%, so we’ll hold a little longer and see if the stock can bounce here. If it declines further instead, and our loss rises to 10%, we’ll sell half our position to reduce risk. For now, Hold.
Next ex-dividend date: October 15, 2018 est.
BUY – UnitedHealth Group (UNH 261 – yield 1.4%) – Health care stocks pulled back at the end of last week, bringing UNH just down to its 50-day line. Yesterday, Bloomberg published a study blaming pharmacy benefit managers (PBMs) for most of the increase in prescription drug prices, but UNH seems unaffected. So far this looks like a normal pullback, and I think safe income investors can use it to start positions in UNH. 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.
Next ex-div date: December 6, 2018 est.
BUY – Xcel Energy (XEL 49 – yield 2.9%) – XEL looks a little extended short-term, trading 4% above its 50-day line, but the stock is healthy and in an uptrend. The utility is one of the largest providers of wind and solar energy in the U.S., and delivers reliable single-digit revenue growth. 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 11, 2018
Closing prices as of September 4, 2018
