Calm has been restored to Wall Street since my last update. The Nasdaq is virtually unchanged in the last week, though leading growth stocks remain a bit choppy and wobbly. The Dow, meanwhile, made some decent strides, gaining 1% to reach a new six-month high.
Yes, the trade war with China continues to escalate, which could be preventing stocks from taking off (it’s certainly still weighing on Chinese stocks). But a correction doesn’t seem imminent either—at least not yet.
Thanks to the week of relative tranquility, I have no ratings changes today. However, several of our stocks have taken encouraging steps forward since last Wednesday, including one natural gas company that I was close to moving to Sell but has earned a stay of execution on the heels of a big jump.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 30 – yield 8.7%) – After weathering the previous week’s sell-off in the financial sector, AB held steady last week. With solid support at its 50-day line, I put AB back on Buy last week. A breakout past 31 would be very bullish (and it came darn close last Friday, closing at 30.95). The set-up looks good here.
Next ex-div date: November 1, 2018 est.
BUY – Community Health Trust (CHCT 30 – yield 5.2%) – 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 35 – yield 4.4%) – GM righted the ship after a tough stretch, poking its head back above 35 after falling below that support level last week. The stock is now back below support at 35, but could still find support around 32.50. I moved GM to Hold last week, and will keep it there for now. As a reminder, we’ve already sold two-thirds of our position at higher prices, and still have a 26% total return in the remaining position, so our risk is limited.
Next ex-div date: est. December 6, 2018
HOLD – ONEOK (OKE 69 – yield 5.0%) – What a difference a week makes. Last week, ONEOK was in a medium-term downtrend, and while I kept it at Hold for the yield, I said it would be okay if you wanted to start shedding some shares. All it’s done in the five trading days since is jump 6.8% to reach a six-week high! OKE’s about-face has coincided with a surge in natural gas prices. If both continue to advance, it could necessitate a rating change. But we’ll keep OKE at Hold for now.
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 of late. The stock has been consolidating its recent gains for close to a month 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 110 – yield 1.3%) – AXP chugged ahead last week, inching to fresh 52-week highs. It’s now up more than 10% since the beginning of August, and hasn’t been below its 50-day moving average since June. An FBI investigation into the company’s foreign-exchange pricing practices could come back to bite AXP at some point, but it’s clear Wall Street isn’t concerned. Ride the momentum!
Next ex-div date: October 4, 2018 est.
BUY – BB&T Corp (BBT 50 – yield 3.2%) – 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 133 – yield 1.4%) – BR had a rare down week, falling to 133 from 137. Still, it’s up more than 14% in the last three months, and trades well above its 50- and 200-day moving averages. Big picture, 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. The recent pullback represents an ideal buying opportunity.
Next ex-div date: est. December 17, 2018
BUY – CME Group (CME 173 – yield 1.6%) – Shares of this financial exchange operator were unchanged last week, which means it’s still trading near all-time highs. The stock can be bought on normal pullbacks.
Next ex-div date: est. December 7, 2018
BUY – CSX Corp. (CSX 74 – yield 1.2%) – CSX continues to consolidate 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 78 – yield 4.0%) – OXY bounced off its 200-day moving average this past week, which is encouraging. 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: est. December 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 79 – 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. Thus, I moved ED back to Buy last week, and am keeping it there despite a small dip this past week.
Next ex-div date: November 13, 2018 est.
BUY – Ecolab (ECL 157 – yield 1.0%) – ECL stayed hot last week, creeping to 157 after breaking above 150 resistance the previous week. It’s now been in a sustained uptrend for more than a month. Buy on pullbacks for capital appreciation and safe income.
Next ex-div date: est. December 17, 2018
BUY – Invesco Preferred ETF (PGX 14 – 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: est. December 14, 2018 est.
BUY – McCormick & Co (MKC 130 – yield 1.6%) – Like ECL, MKC 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 53 – yield 2.5%) – MGRC continues to fall on light volume, though it seems to have found support at 52. If it declines any further, and our loss rises to 10% (it’s currently 9%), we’ll sell half our position to reduce risk. For now, Hold.
Next ex-dividend date: October 15, 2018 est.
BUY – UnitedHealth Group (UNH 264 – yield 1.4%) – After a normal pullback, UNH bounced off its 50-day moving average as I’d hoped, gaining three points last week. 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 47 – yield 3.1%) – Last week, I wrote that XEL looked a bit extended in the short term. And sure enough, it pulled back a bit. It looks like the perfect entry point, since the stock remains very much in a long-term 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: est. December 13, 2018
Prices as of September 19, 2018
Closing prices as of September 4, 2018
