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Dividend Investor
Safe Income and Dividend Growth

December 29, 2021

Another year has come and gone. I can’t believe it. They never used to go by this fast. Anyway, it was a terrific year for stocks. The market is up 28% for the year.

Problems and Opportunities for 2022
Another year has come and gone. I can’t believe it. They never used to go by this fast. Anyway, it was a terrific year for stocks. The market is up 27% for the year.

That’s a huge year, considering the historical average return is just under 10%. The S&P 500 is up 108% from the bear market low in March of 2020 and 42% from the pre-pandemic high in February of 2020.

Wall Street has certainly handled this virus well.

The outsized returns are likely about the economy and earnings growing at record levels to make up for lost time while interest rates are near all-time lows. But the party can’t last forever. And here comes 2022. It’s time to look ahead.

The market is high after a 21-month period of outsized returns. And serious problems are gaining steam. Inflation isn’t going away and is getting worse. The Fed is unwinding its stimulus at a faster pace to make up for lost time fighting inflation. And Omicron is spreading.

This suggests we shouldn’t expect returns like we’ve seen recently in the New Year. Of course, I’m not predicting disaster. The market couldn’t maintain that pace even without such problems looming. And we are still likely in the early stages of a bull market and recovery that should last years longer. But, under the circumstances, one should expect a choppier and more sideways year in 2022.

But while inflation and likely rising interest rates may hinder the market indexes, these things are good for certain stocks. Energy and financial stocks tend to thrive in times of inflation and rising interest rates. And these stocks have been knocked back recently on Omicron virus worries.

The virus will fade, but inflation and a tightening Fed will endure throughout 2022. It’s an opportunity to get into recently cheaper energy and financial stocks ahead of a very promising year for the sectors.

There may be more turbulence in the weeks ahead as the virus runs its course. But portfolio positions Valero Energy (VLO), Chevron (CVX), ONEOK (OKE) and Enterprise Product Partners (EPD) as well as KKR & Co. (KKR), U.S. Bancorp (USB), and Visa (V) look increasingly attractive heading into 2022.

High Yield Tier
AGNC Investment Corp. (AGNC – yield 9.3%) – This stock sent some warning signals when it dipped below 15 per share. Buy it only fell that low briefly during the Omicron selloff. As the virus fears have waned, AGNC bounced right back. From here, it is likely that inflation and strong economic growth will pressure interest rates higher in the quarters ahead, and AGNC should benefit from a steeper yield curve. BUY

Blackrock Enhanced Capital and Income Fund (CII – yield 5.5%) – This covered call ETF is a good place to be looking ahead to a more choppy and sideways market in the New Year. It provides a higher level of income at the expense of capital appreciation potential. That should be a good trade. Plus, the more defensive nature and high dividend should be attractive to investors in 2022. BUY

Compass Diversified (CODI – yield 4.8%) – This superstar Business Development Company (BDC) has been bouncing around of late. It took a hit during the volatility over the virus but has not recovered as strongly as other cyclical stocks. Smaller companies are more vulnerable to slower growth and BDCs are more exotic securities that investors don’t turn to first during a rotation back into cyclical companies. But it should thrive in the New Year. BUY

Enterprise Product Partners (EPD – yield 8.3%) – This midstream energy partnership has underperformed the market in a year where energy is the top-performing sector, and it has significantly underperformed the midstream energy index. The likely reason for the underperformance is the fact that Enterprise moves a lot of oil, and the market sees that as a dying business over time. But the stock is still cheap, and the high distribution is very safe. The stock also tends to rally with the overall energy sector, which has shown some strength of late. BUY

ONEOK Inc. (OKE – yield 6.3%) – This midstream energy stock had been trending down since late October, but it’s had a nice bounce over the last week. That may sound unenthusiastic. But consider that OKE has returned 65% in 2021, which is more than double the return of the overall market in a fabulous year. OKE also tends to rally with the overall energy sector and prospects look bright for energy in 2022. The stock is also still selling below the pre-pandemic high despite higher earnings. BUY

Realty Income (O – yield 4.1%) – This legendary income stock had been bouncy since late October. It also took a pretty big hit from the Omicron news after Thanksgiving, as the risk of slower growth soured investors on retail properties. But O has come back with a vengeance over the past week as virus fears waned. It’s up 6.4% in the past five sessions and within bad breath distance of the high. HOLD

STAG Industrial (STAG – yield 3.1%) – Spectacular! This industrial REIT has been a solid performer all year long. It had been making new highs while the overall market floundered. When the market came back, STAG surged even higher. It’s up another 5% in the last week, hitting another new all-time high, and it has returned 55% this year—not bad for a monthly dividend payer. Every facet of the market seems to like STAG these days. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.2%) – The biopharmaceutical giant has really caught fire this month. It’s up over 17% for December and continues to make another new all-time high every day. Fantastic earnings recovered the stock from a selloff in late summer over the FDA announcement of a warning label for one of its most promising drugs. Plus, Healthcare stocks have been top performers recently. The stock still sells at a very cheap valuation and might have more to go on this run. It’s now returned over 100% since being added to the portfolio as the long-term story is playing out. HOLD

Broadcom Inc. (AVGO – yield 2.4%) – This technology stock was added to the portfolio in February and was a dog until October. Since the beginning of October, AVGO caught fire and rallied 43%. It continues to move high at a faster pace and has been making a series of new all-time highs. Business is good. Broadcom recently got a huge boost from a stellar earnings report and a raising of the dividend. The stock is making up for lost time. BUY

Brookfield Infrastructure Partners (BIP – yield 3.4%) – This infrastructure partnership is in an unmistakable longer-term uptrend, albeit a bouncy one. It soars to new highs and then pulls back, rinse and repeat. At this point, BIP is back on the way to a new high. Year to date, the returns have been on par with the overall market. But this has been a raging bull market and BIP is a defensive stock that is less volatile that the market in general. HOLD

Chevron Corp. (CVX – yield 4.5%) – Energy stock have rallied over the past week as Omicron fears have subsided and CVX just made a new high. But while most energy stocks floundered since October, CVX barely budged. It held strong during the consolidation and is poised to move higher next year as profits explode from high demand and high oil prices. This is a great inflation hedge ahead of a promising year for the sector. HOLD

Eli Lilly and Company (LLY – yield 1.4%) – The big pharma company stock soared to new highs and then pulled back but has regained momentum and is right back near that high and may very well break beyond it in the weeks ahead. Lilly raised revenue and profit forecasts for 2021 and 2022. That’s big, especially considering the prospects of approval in the New Year of a new Alzheimer’s drug that could be a mega blockbuster. HOLD

KKR & Co. Inc. (KKR – yield 0.8%) – After an amazing October, KKR has really been riding the fortunes of cyclical stocks. As it was consolidating after the surge it got hit with virus and growth concerns. But as those concerns are fading, KKR has been red hot. It’s up about 10% in the last week. As I mentioned above, recent virus concerns are making cyclical stocks cheap ahead of a promising year. And KKR is one of the best. HOLD

Qualcomm Inc. (QCOM – yield 1.5%) – It’s hard to say what this stock will do in the near term. QCOM has certainly leveled off since the 40% spike in a month. Of course, the stock has faced a lot of external headwinds and is hanging tough not far from the recent high. It hasn’t really pulled back so much as it has just stopped going higher for now. But business is booming and the stock is still reasonably priced. I like the prospects for the stock in the New Year. HOLD

Spectrum Brands Holdings, Inc. (SPB – yield 1.7%) –This stock pulled back recently along with retail stocks amidst the recent virus worries. But there really isn’t a good reason for the pullback. It sells home products. If the virus gets bad and results in more lockdowns, sales will likely go higher. But it’s bouncing back with the rest of the sector. HOLD

U.S. Bancorp (USB – yield 3.4%) – The yield curve has been going the wrong way, and so has USB. Although most elements of the bank’s business is booming, the most important one, net interest income, has been weaker. But, as I mentioned above, the pressures of inflation and a strong economy combined with the Fed tapering is likely to put upward pressure on rates next year. That missing piece of the puzzle should drive the stock higher. HOLD

Valero Energy Corp. (VLO – yield 5.5%) – This refiner stock is a high leverage play on the energy sector. It exaggerates the movements of the overall sector. It had fallen a lot more since the sector consolidated over the past couple of months. But now that the sector has gotten hot again, VLO is up a lot more. It has rallied over 10% in the last week. This virus stuff is likely to be temporary and well outlasted by inflation and a recovering economy. VLO has been held back ahead of boom times next year. HOLD

Visa Inc. (V – yield 0.7%) – This company makes money every time its cards are swiped. And its cards comprise about a 50% share of all cards issued worldwide. It’s one of the best financial stocks to own. V has been hot stuff since hitting recent lows last month. The future is setting up very well for Visa. The global economy should bounce back next year. Travel will return. And that will be icing on the cake because U.S. business is already booming. BUY

Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – After falling during the pandemic, this preferred stock ETF has recovered. This preferred stock ETF is much less volatile than the stock market while providing a big yield. It also adds diversification as preferred stock performance is historically not correlated to the stock and bond markets. HOLD

NextEra Energy (NEE – yield 1.7%) – After having a crummy year as investors focus on cyclical stocks and conventional energy, this alternative energy utility has been on a tear. It has shot nearly 20% higher in the past few months and is back near the all-time high. NEE is benefiting from a flight to safety. Longer term it should make up for lost time when alternative energy stocks come back into vogue. BUY

Xcel Energy (XEL – yield 2.7%) – Despite a dip earlier this week, this alternative energy utility is still on an uptrend. It had been up 10% in December. The normally strong performing utility has had a lousy year. But things are changing. It may be lagging the NEE situation. Utilities have been getting stronger lately. Plus, alternative energy stocks have floundered this year despite huge growth in the sector as investors focused on the revitalized conventional energy sector. But things change and XEL is still a great way for conservative investors to play the growth in alternative energy. BUY

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
Total ReturnCurrent YieldCDI OpinionPos. Size
AGNC Investment Corp. (AGNC)04-14-2117Monthly1.449.10%15-5%9.3%BUY1
Blackrock Enhanced Cap & Inc. (CII)07-13-2121Monthly1,125.6%217%5.5%BUY1
Compass Diversified (CODI)10-13-2131Qtr.1.445.0%30-3%4.8%BUY1
Enterprise Product Partners (EPD)02-25-1928Qtr.1.808.30%22-5%8.3%BUY1
ONEOK Inc. (OKE)05-12-2153Qtr.3.746.00%5917%6.3%BUY1
Realty Income (O)11-11-2062Monthly2.814.2%7222%4.2%HOLD1
STAG Industrial (STAG)03-21-1824Monthly1.453.3%48138%3.1%HOLD1/2
Current High Yield Tier Totals:5.5%43.0%5.5%
Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.204.8%136101%4.2%HOLD2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.402.6%59052%2.4%BUY1
Brookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.043.6%6083%3.4%HOLD2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.164.7%11835%4.5%HOLD1
Eli Lily and Company (LLY)08-12-20152Qtr.3.401.3%24586%1.4%HOLD2/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.580.8%7564%0.8%HOLD1/2
Qualcomm (QCOM)11-26-1985Qtr.2.601.5%184130%1.5%HOLD1/3
Spectrum Brands Holdings, Inc. (SPB)08-11-2181Qtr.1.681.6%9926%1.7%HOLD1
U.S. Bancorp (USB)12-09-2045Qtr.1.683.2%5728%3.2%HOLD1
Valero Energy Corp (VLO)06-26-1984Qtr.3.925.7%751%5.4%HOLD1/2
Visa Inc. (V)12-08-21209Qtr.1.500.7%2154%0.7%BUY1
Current Dividend Growth Tier Totals:2.8%40.3%2.7%
Safe Income Tier
Invesco Preferred (PGX)04-01-1414Monthly0.744.9%1557%4.9%HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.541.7%92123%1.7%BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.832.8%68178%2.7%BUY2/3
Current Safe Income Tier Totals:3.1%119.3%3.1%

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