The major indexes all ended last week substantially higher, after Fed Chairman Powell said interest rates are just below neutral. Then over the weekend, President Trump said he was starting to hash things out with China. But after a good start to the week Monday, the major indexes all sold off sharply yesterday, after it became clear that the U.S. and China haven’t actually hammered out any details yet. Markets will get a chance to collect their bearings today, because the stock market is closed for the day in honor of former President George H.W. Bush (this is standard procedure when a President passes away.)
Last week’s gains have still improved the backdrop for stocks, but we’ll see what happens when the market reopens tomorrow. As for interest rates, futures markets are currently pricing in a 78% chance of a rate hike on Wednesday, followed by one or two more hikes next year. The Fed will have one last big data point to digest with the release of the jobs report Friday; Fed Chair Powell has emphasized that Fed policy is still data-driven, even as rates approach neutral.
With its mix of conservative, growth-oriented and high-yield investments, our portfolio continues to do well. Most of our non-Safe Income stocks are still on Hold, so it’s time to start thinking about becoming more aggressive, if the market becomes more constructive. But we don’t want to get ahead of the market, so I don’t have any rating changes for now.
HIGH YIELD TIER
HOLD – AllianceBernstein (AB 30 – yield 9.6%) – AB looks healthy. Prior to yesterday’s selloff, the stock had bounced back to the top of its five-month trading range, around 31. And even after a big drop yesterday, the stock is still above its 50-day line. AB remains range-bound for now, but a breakout past 31 would be very bullish. To the downside, the stock has solid support from its 200-day, currently around 29. AllianceBernstein is a New York-based asset manager that pays variable quarterly distributions based on cash flow. Distributions are considered return of capital and the company issues a K-1 form instead of a 1099. High-yield investors can Hold.
Next ex-div date: February 1, 2019 est.
HOLD – Community Health Trust (CHCT 30 – yield 5.3%) – CHCT got a big boost after Fed Chairman Powell said interest rates were just below normal last week. The language suggested that the Fed will stop raising rates sooner rather than later, and REITs reacted positively. CHCT gapped up through its 50-day line and rallied back to the top of its four-month trading range, before pulling back normally this week. Community Health Trust is a REIT that owns health care buildings in non-urban areas. I’ll probably put the stock back on Buy if REITs remain strong after the Fed’s statement next week.
Next ex-dividend date: February 21, 2019 est.
HOLD – General Motors (GM 37 – yield 4.2%) – The past three days have been a wash for GM. The stock gapped up Monday after President Trump tweeted that China would remove tariffs on imported cars, but his administration contradicted those claims yesterday, saying nothing had been signed. Then after Trump doubled down on tariffs in another tweet, calling himself “a Tariff Man,” GM gave back all of Monday’s gains and more, closing back where it traded last week. The brief wiggle aside, GM still looks solid, trading in a range around 35-38. At home, November auto sales came in strong on Monday. Hold.
Next ex-div date: est. December 6, 2018
HOLD – ONEOK (OKE 61 – yield 5.2%) – I sold another third of our OKE shares for a 10% profit last Wednesday. OKE bounced nicely for a while after the sale, supported by a rally in energy stocks and stabilization in oil prices, but it gave back most of the gains during yesterday’s selloff. We’re now holding a third of our usual position in the natural gas pipeline and processing company, and will continue to hold as long as OKE remains above about 58.50. The dividend is high and safe. Natural gas prices are at their highest level in a year, but analysts are doubtful the strength will last.
Next ex-div date: February 1, 2019 est.
HOLD – STAG Industrial (STAG 26 – yield 5.4%) – STAG still looks solid. The stock has been a good store of value and source of income during the last two months; it’s trading in a tightening range around 26 and pays dividends monthly. The industrial REIT owns properties in 37 states that are mostly used as warehouses and fulfillment centers. I’ll probably put STAG back on Buy if REITs remain strong following next week’s Fed statement. For now, high-yield investors can Hold.
Next ex-div date: January 30, 2018 est.
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 108 – yield 1.3%) – AXP had just hit a new all-time high Monday before yesterday’s selloff clawed back most of the stock’s gains from the past week. But AXP remains above its 50-day line, and the strength is a great sign. If markets regain their footing tomorrow I’ll probably put AXP back on Buy. Analysts recently increased their 2018 and 2019 earnings estimates for the credit card company, and now expect AmEx to report 26% EPS growth this year and 10% growth next year. Hold.
Next ex-div date: January 3, 2019
HOLD – BB&T Corp (BBT 48 – yield 3.1%) – Regional bank stocks totally tanked during yesterday’s selloff. The index dropped 4.4%, and BBT fell 5.3%. The decline brings BBT back below its 50-day line, to where the stock was trading before shaping up in early November. If BBT rebounds quickly and pops back above its 50-day line, great. If it doesn’t, we’ll look for support to appear at or above 46, where the stock bottomed twice in October. BB&T is a large regional bank operating in the mid-Atlantic, Southeast, Midwest and Texas. The company has paid dividends since 1987 and has increased the dividend every year since 2011. Analysts expect BB&T to report 43% EPS growth this year and 10% growth next year. Hold.
Next ex-div date: February 13, 2019 est.
HOLD – Broadridge Financial Solutions (BR 103 – yield 1.9%) – BR is acting relatively normal this week, trying to recover from its big selloff last month. But the stock is still one of our weaker holdings, and is trending down. We’re already down to a third of our regular position size in BR, so for now I’ll continue to Hold. If the stock continues to decline, we’ll sell the rest of our shares. Broadridge provides investor communication solutions and other technology to financial companies and has been dragged down by the selling in tech stocks.
Next ex-div date: December 13, 2018
BUY – CME Group (CME 188 – yield 1.5%) – CME is pulling back normally from the 52-week highs the stock hit two weeks ago. The stock has good support from its 50-day line just a few dollars south of here, so this pullback looks buyable. The company runs financial exchanges where traders buy and sell derivatives on everything from equity indexes to interest rates, and revenues rise when market volatility picks up. Nine analysts have increased their 2018 and 2019 earnings estimates over the past month. The stock had a nice long consolidation from March to August, so I don’t think it’s overbought yet. The company pays a large special dividend at the end of each year, which can more than double its normal yield.
Next ex-div date: December 7, 2018
HOLD – CSX Corp. (CSX 71 – yield 1.2%) – CSX, which was in an uptrend when I added it to the portfolio at the end of August, is now in a sideways trend. Our timing was unfortunate, but we can be patient. The stock appears to have solid support from its 200-day, currently at 66. The stock could revisit the moving average if the market correction continues, but overall CSX still looks healthy. The company is a major freight railroad, whose network stretches from Florida to Montreal and from the Atlantic to the Mississippi. CSX switched to a low-cost point-to-point system last year to increase efficiency, and boasts the lowest costs in the industry. The company has also paid a dividend since 1981, and has increased the dividend for eight years in a row. Hold.
Next ex-div date: February 2019
HOLD – Dunkin’ Brands (DNKN 73 – yield 1.9%) – DNKN still looks decent; the stock is showing very little selling pressure. Instead DNKN is trading sideways right around its 50-day line, and is still well above its 200-day. Once the market environment improves, this consolidation could provide a good launch pad for the stock’s next advance. Analysts are expecting the coffee and donut chain to report full-year sales growth of 55% and EPS growth of 17%, and management is improving profitability by simplifying menus and focusing on growth areas. DNKN is a Hold.
Next ex-div date: November 23, 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 4.9%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
BUY – Invesco BulletShares 2022 High Yield Bond ETF (BSJM 24 – yield 5.5%)
After a prolonged drop last month, the high yield funds in our bond ladder have stabilized. However, some analysts believe weakness in junk bonds is permanent, citing an end to the “reach for yield” created by low interest rates over the past decade. Higher-quality bonds are now offering yields similar to those available on junk bonds over the past few years, reducing the incentive for investors to move up the credit ladder in search of income. Low oil prices aren’t helping things either; about 15% of junk bond issuers come from the energy sector. Even if junk bonds remain out of favor, the BulletShares funds should be a fairly good store of value, since Invesco disburses the net asset value, or NAV, of the ETF back to investors at expiration. Still, if you’re looking for shorter-term security, or are very risk-averse, stick to the investment-grade rated BulletShares.
Next ex-div dates: December 24, 2018 est.
BUY – Consolidated Edison (ED 82 – yield 3.5%) – Utilities have taken off since Powell said interest rates were just below neutral last week, and yesterday’s selloff only helped. Utilities were the only S&P sector that was higher on the day, and the surge in interest helped ED break out of its 10-month trading range to close at its highest level since early January. As I’ve written frequently recently, now is a good time to be invested in utilities; they’ve been major beneficiaries of the last few months of market volatility and a major headwind will be removed once interest rates level out next year. In the meantime, ED is a good safe haven from market volatility and source of reliable quarterly dividends. The utility is the electricity provider for New York City and the surrounding area. Long-term investors can buy on pullbacks for safe income.
Next ex-div date: February 11, 2019 est.
BUY – Ecolab (ECL 157 – yield 1.0%) – ECL bounced off its 50-day last week to hit another new all-time high Monday. The stock pulled back again during yesterday’s selloff, but it’s still above the 50-day and looks strong. Volatility has increased a bit, compared to ECL’s normally boring behavior, but the stock looks ready to make some progress once the market environment improves. I put ECL back on Buy last week and will keep it there for now. The company produces cleaning chemicals and other products used in a variety of industries, generating non-cyclical cash flow and fueling reliable annual dividend increases. Buy.
Next ex-div date: est. December 17, 2018
BUY – Hormel Foods (HRL 45 – yield 1.9%) – HRL has been consolidating since hitting a new 52-week high two weeks ago. The stock is in a steady uptrend supported by its 50-day line, and has lower volatility than the broad market. Management recently raised the dividend by 12%, bringing the stock’s yield to 1.9% and marking Hormel’s 53rd annual dividend increase in a row. The stock could consolidate a bit longer here, between about 44 and 46. Long-term I think it still has gas in the tank though—the stock laid fallow for most of the past two years and just surpassed its 2016 highs in October. Buy.
Next ex-div date: January 11, 2019
BUY – Invesco Preferred ETF (PGX 14 – yield 6.2%) – PGX, our preferred share ETF, continues to decline. Among other factors, increased volatility in the stock and bond markets is raising fears of a liquidity crunch in fixed income markets, prompting some investors to start moving their cash elsewhere. Because high yielding fixed income securities (including preferreds) are much more thinly traded than stocks, they can be hard to buy and sell when they become volatile. At worst, sellers get desperate and drop prices dramatically in order to find a buyer, causing a panic like the one seen during the financial crisis. While there’s no liquidity crisis in fixed income yet, markets are starting to worry about the possibility. But I don’t think there’s any reason to panic yet, the ETF suffered similar pullbacks in 2011, 2013 and late 2016, and usually manages to recover at or above 13.
Next ex-div date: est. December 14, 2018 est.
BUY – McCormick & Co (MKC 152 – yield 1.5%) – MKC is back at all-time highs. The stock is in a sustainable uptrend well supported by its 50-day line. Management just increased their dividend by 10%, McCormick’s 32nd consecutive annual dividend increase. McCormick makes spices as well as numerous brand-name sauces, seasonings and condiments. Long-term investors can continue to Buy on pullbacks.
Next ex-div date: December 28, 2018
BUY – NextEra Energy (NEE 182 – yield 2.4%) – We got lucky with our timing on NextEra. After I added the stock to our portfolio at last Thursday’s average price of 176, NEE immediately surged 3% to hit a new all-time high, as investors piled into utilities following Powell’s comments last week. NextEra is the electric utility for much of Florida, plus a major producer of renewable energy. In addition to wind and solar farms, the company also owns battery storage sites, natural gas pipelines and nuclear plants. The company has paid dividends every year since 1983, and has increased the dividend every year since 2005.
Next ex-div date: February 27, 2019 est.
BUY – UnitedHealth Group (UNH 279 – yield 1.3%) – UnitedHealth gapped up after their investor day last Tuesday, and went on to hit new all-time highs. At the meeting, the health insurer laid out new 2019 financial guidance, including 7% to 8% revenue growth and 13% to 15% EPS growth. Management also provided longer-term guidance that was greeted enthusiastically by analysts. The company is a reliable long-term safe income investment with an eight-year history of dividend growth, and the stock looks buyable here.
Next ex-div date: February 2019
BUY – Xcel Energy (XEL 53 – yield 2.7%) – Xcel Energy, a utility based in Minnesota that already generates much of its electricity from wind, announced yesterday that it plans to deliver 100% carbon-free energy by 2050. The company also raised its carbon reduction target for 2030, saying it has already reduced emissions by 35% since 2005. With tailwinds from the Fed’s dovish statement and the selloff in the broad market yesterday, XEL has finally surpassed its late 2017 levels to hit a new 52-week high. Long-term safe income investors can buy on pullbacks.
Next ex-div date: est. December 13, 2018
Prices as of December 4, 2018
