The stock market managed to tread water for most of September. The S&P 500 and Nasdaq both ended the month up about half a percent, while the Dow managed to gain nearly 2%, helped by rallies in energy and industrial stocks.
However, we’re seeing some renewed rotation as we start October. There’s been fierce selling in growth stocks over the past two days, which has hit a few of our holdings, including our latest addition, Dunkin’ Brands (DNKN). Financials and materials stocks are also lagging, although there are exceptions: AllianceBernstein (AB), American Express (AXP) and CME Group (CME) all still look very healthy.
That’s not the case for BB&T Corp. (BBT), which moves back to Hold today following a selloff. The regional bank is on the chopping block if this correction continues.
However, energy stocks are strong, and I’m moving Occidental Petroleum (OXY) back to Buy today.
Finally, volatility picked up in fixed income and rate-sensitive investments this week. REITs and utilities bottomed last Wednesday, even as Fed Chair Powell struck a hawkish note following the Fed’s meeting, calling the economic outlook “bright.” However, interest rates have chopped around since his speech, and several Fed members are making public comments today, which could lead to more short-term volatility.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 30 – yield 8.4%) – AB remains just short of breaking out past 31, although it did hit a new closing high of 30.95 a week and a half ago. AllianceBernstein is an asset manager known for their actively managed strategies. Assets under management rose to $551 billion in August, up from $546 billion at the end of July. Market appreciation and net inflows in all divisions (Institutions, Retail and Private Wealth) contributed to the rise. The stock has solid support at its 50-day line and high-yield investors can Buy a little here.
Next ex-div date: November 1, 2018 est.
HOLD – Community Health Trust (CHCT 31 – yield 5.3%) – REITs started to rebound last week as interest rates moderated. However, yields popped again early this week, ahead of ADP’s employment report and handful of Fed speeches later today. The 10-year yield is firmly above 3.0%, and looks likely to stay there for now. CHCT briefly rose above its 50-day line late last week before dipping again. However the stock is still above its 200-day. I don’t expect an immediate climb to new highs—the Fed is sticking to their guns on interest rates—but it now looks like we might see a few weeks of consolidation instead of a deeper correction.
Next ex-dividend date: November 15, 2018 est.
HOLD – General Motors (GM 33 – yield 4.6%) – GM has fallen to its lows again, where it has found support for now. The new North American trade agreement removes some uncertainties for the automaker, although sales fell industry-wide in September, dragged down by higher interest rates and higher prices caused by tariffs. GM stock is now near the bottom of its trading range, where it offers good value, although you may have to wait patiently for a rebound. I moved the stock to Hold earlier this month and will keep it there for now. While sales are expected to fall this year, 2019 should bring a return to growth, and the longer-term potential of GM’s autonomous driving and ride-sharing investments is big—and should draw new investors into the stock.
Next ex-div date: est. December 6, 2018
HOLD – ONEOK (OKE 68 – yield 4.7%) – OKE remains in solid shape, consolidating its recent short-term surge just above its 50-day line. Natural gas prices remain close to their highest level since January. That’s good news for ONEOK, which operates natural gas and natural gas liquids (NGL) pipelines and natural gas processing facilities. The stock had been declining but reversed course sharply two weeks ago, and is now trading around its 50-day line. Hold.
Next ex-div date: November 2, 2018 est.
BUY – STAG Industrial (STAG 27 – yield 5.3%) – STAG didn’t get as nice of a bounce as Community Health Trust (CHCT) last week, and remains below its 50-day line. After a good run in the first half of the year, it wouldn’t surprise me to see the stock go through another multi-month consolidation phase here, possibly between 27 and 29. But the stock is near the bottom of that range, and looks to have support here, so I’ll keep it on Buy—for high-yield investors—for now.
Next ex-div date: September 27, 2018
DIVIDEND GROWTH TIER
BUY – American Express (AXP 108 – yield 1.3%) – AXP is still in a strong uptrend and the stock’s current pullback from its recent 52-week high is a good buying opportunity. AXP should have plenty of gas in the tank long-term. The stock just broke out of a four-month trading range, and analysts are expecting the credit card company to deliver 20% revenue growth and 24% EPS growth this year. AXP trades ex-dividend tomorrow, meaning today is the last day to buy the stock to receive the next dividend payment.
Next ex-div date: October 4, 2018
HOLD – BB&T Corp (BBT 48 – yield 3.1%) – BBT fell to a new six-month low as financials pulled back last week. The stock had previously found support at 50 consistently, but has now fallen through the bottom of its trading range, which is prompting me to put the stock back on Hold today. BBT is now below is 50- and 200-day lines, is performing worse than its peers, and has no obvious support level in the near-term. We sold half our shares back in July and could sell the rest soon. However, we’ll wait a little to see if this is a short-term shakeout first.
Next ex-div date: November 7, 2018 est.
BUY – Broadridge Financial Solutions (BR 130 – yield 1.5%) – BR has pulled back to its 50-day line, but still looks healthy, with shares basically where they were after the solid earnings gap in early August. Broadridge is the largest investor communications firm in the U.S., and delivers steady single-digit sales growth every year. The recent pullback represents an ideal buying opportunity.
Next ex-div date: est. December 17, 2018
BUY – CME Group (CME 175 – yield 1.6%) – CME’s breakout seems to be the real thing. The stock has been above 170, which was previously an overhead resistance level, since the start of September. CME’s 50-day is not far behind, at 169, and the stock also has support from the 200-day, down at 163. Dividend Growth investors can Buy on normal pullbacks. CME pays a large special dividend at the end of each year, which can more than double its normal yield.
Next ex-div date: est. December 7, 2018
BUY – CSX Corp. (CSX 74 – yield 1.2%) – CSX remains in a tight consolidation just above its 50-day line, which looks like a good buying opportunity. 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.
Next ex-div date: November 29, 2018 est.
BUY – Dunkin’ Brands (DNKN 72 – yield 1.9%) – DNKN was added to our portfolio Thursday, at the stock’s average price of 74.25. However, the stock got hit by fierce selling in growth stocks Monday and Tuesday, and is now below its 50-day line for the first time since April. If this rotation turns into a longer correction in growth stocks, we’ll reassess our choice of DNKN, however, this could just be another quick shakeout in leading stocks, so I’m not taking any action today. DNKN’s earnings are expected to grow 12% this year and 9% next year, and the company plans to open 1,000 new stores by 2020. DNKN has paid a dividend since 2012 and has increased the dividend by an average of 15% annually since then.
Next ex-div date: November 23, 2018 est.
BUY – Occidental Petroleum (OXY 83 – yield 3.7%) – OXY’s rebound continued this week, and the stock is back above its 50- and 200-day moving averages. Oil prices are at their highest levels since July, and energy stocks are leading the market higher. I’ll put OXY back on Buy today for dividend growth investors. Occidental is a Houston-based oil and gas company with a large chemicals business. Analysts expect revenues to rise 28% this year, fueling triple-digit earnings growth.
Next ex-div date: December 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.
Next ex-div dates: October 4, 2018 est.
BUY – Consolidated Edison (ED 77 – yield 3.7%) – The selloff in interest rate-sensitive investments two weeks ago sent ED crashing through its 50- and 200-day lines, but the utility found support around 75 and has started to rebound. The stock’s intermediate-term momentum is primarily sideways, but it’s still a great long-term holding for safe income, and can be bought when it’s near the bottom of its trading range. Expect a little more volatility following this week’s Fed speeches.
Next ex-div date: November 13, 2018 est.
BUY – Ecolab (ECL 157 – yield 1.0%) – After a rapid advance over the past four weeks, ECL is consolidating between 155 and 160, pausing to let its 50-day line—currently at 151—catch up. Industrial stocks are strong, and ECL is trending up nicely. Ecolab makes cleaning chemicals and other products that generate reliable recurring revenues and has paid dividends for 32 years. Buy on pullbacks for capital appreciation and safe income.
Next ex-div date: est. December 17, 2018
BUY – Invesco Preferred ETF (PGX 14 – yield 5.9%) – PGX pulled back sharply this week, responding to volatility in interest rates. I’ll keep the ETF on Buy though, since it usually has ample support near these levels. PGX is an ETF that holds preferred shares (a type of debt) and pays monthly distributions. The fund has low overall volatility and usually trades between 14 and 16. Note that PGX offers no capital appreciation potential, instead, it’s a good store of value and source of regular income. Buy under 15.
Next ex-div date: est. December 14, 2018 est.
BUY – McCormick & Co (MKC 133 – yield 1.6%) – McCormick reported excellent third-quarter earnings Thursday, including 14% revenue growth (vs. the consensus estimate of 13%) and 53% EPS growth (analysts had expected 17%). Management also bumped up their full-year earnings guidance by about seven cents, and now expects to achieve 16% to 17% EPS growth this year. The stock broke out to new highs following the announcement, and is also benefitting from the rotation into more defensive stocks. MKC remains in a strong uptrend, if a little overextended short-term. Buy on pullbacks for dividends and capital gains.
Next ex-div date: October 8, 2018
HOLD – McGrath RentCorp (MGRC 53 – yield 2.6%) – MGRC found some support two weeks ago and is trading sideways just under its 200-day moving average, currently at 56. The company rents modular buildings, storage units and more, and has a 16-year history of dividend growth. Hold.
Next ex-dividend date: October 16, 2018
BUY – UnitedHealth Group (UNH 271 – yield 1.3%) – Another beneficiary of the outperformance in blue chips this weeks, UNH looks very healthy. After a normal pullback, the stock bounced off its 50-day moving average a couple weeks ago, and is trending up again. Safe income investors can start positions in UNH here. 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 48 – yield 3.1%) – XEL still looks okay; the stock has bounced back above its 50-day line this week. I’ll keep it tentatively on Buy unless and until utilities start a more sustained correction. Xcel is one of the largest providers of renewable energy in the U.S., and delivers reliable single-digit revenue growth.
Next ex-div date: est. December 13, 2018
Prices as of October 2, 2018
