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Dividend Investor
Safe Income and Dividend Growth

February 23, 2022

It’s official. We are in a correction.

The S&P 500 fell 10% from the high on a closing basis earlier this week. In and of itself, a correction is normal in bull markets, especially considering the current circumstances. After a massive 100% move higher in less than two years, a correction might be considered healthy.

It’s a Correction Now
It’s official. We are in a correction.

The S&P 500 fell 10% from the high on a closing basis earlier this week. In and of itself, a correction is normal in bull markets, especially considering the current circumstances. After a massive 100% move higher in less than two years, a correction might be considered healthy.

But there are some nasty problems out there, namely inflation, the Fed, and Russia. The enduring issue is inflation, and uncertainty regarding the Fed’s reaction to it. No one knows how aggressive the Fed will have to be before inflation is tamed. And that uncertainty will likely remain until much later in the year at least.

But those concerns are somewhat offset by the fact that the economy is still growing well above trend and will likely continue to do so for several more quarters. Earnings are stellar and interest rates are still low. That’s a lot of good stuff offsetting the Fed worries. But the Russia/Ukraine thing is preventing a recovery from recent selling this week, and indeed making things worse.

We might not be out of the woods yet. The selling could get worse. But I still don’t expect a bear market. We are still in the early stages of a bull market and recovery. Stocks should hold up before a 20% downside. But I expect more choppiness and lower returns for much of the year.

Of course, certain sectors should do much better than the overall market. It’s still a great environment for energy stocks. Energy prices keep rising with no end in sight while demand remains strong. The sector is up 20% for the year while the market is down more than 10%. But I think many of the stocks still have further upside from here. Financial stocks should also continue to outperform amidst strong economic growth and rising rates.

This is a different market. It’s not 2020 or 2021. It’s 2022. There are different rules for this leg of the market than there have been over the past couple of years. It is a less forgiving market, where underperforming stocks are more treacherous. That’s why this portfolio recently sold positions in AGNC Investment Corp (AGNC), STAG Industrial (STAG), KKR & Co. (KKR), and Spectrum Brands Holdings (SPB).

High Yield Tier
Blackrock Enhanced Capital and Income Fund (CII – yield 6.1%) – The covered call strategy is a great one. It provides a high income and stability over time. But it tends to move with the market, and that’s been downward this year. The price tends to be relatively stable with a high payout. It will generally underperform the market in good times and outperform it in sideways or down markets. It’s always good to have an investment like that in the portfolio. BUY

Enterprise Product Partners (EPD – yield 8.0%) – The midstream energy partnership is an underperformer that typically only moves when the energy sector rallies. As the energy rally has sputtered, so has EPD. It has still returned about 8% YTD in a down market and it still has a lot going for it. It sells at a cheap valuation. Business is strong. And the huge yield is very safe. I expect good performance over the course of the year. (This security generates a K1 form at tax time). BUY

Global Ship Lease, Inc. (GSL – yield 3.9%) – The container ship company stock has leveled off since hitting a high a couple of weeks ago. But that’s understandable in this volatile market. It still looks good and even closed up over 2% in the ugly day on Tuesday. Container ships remain in very high demand and those stratospheric shipping rates are likely not going down anytime soon. I expect more good things out of the stock.

Note: The dividend has been confusing. The company raised the quarterly dividend from 0.25 per share to 0.375. But the increase won’t take place until the next dividend. For now, the yield is just 3.95%. But it will be adjusted upward after this dividend to 5.73%. BUY

ONEOK Inc. (OKE – yield 6.2%) – The midstream company stock is underperforming this year. It’s down about 10% from the high despite a red-hot energy market. It’s probably payback to some degree because OKE had a phenomenal 2021 where it returned 69%. But the dividend is safe and business prospects are still very good. It is also still below the pre-pandemic price despite much higher earnings. BUY

Realty Income (O – yield 4.4%) – REITs have been in the crapper all year. Real estate is the worst performing sector of the S&P 500 so far this year. Rates are rising and so is competition for yield. But O has held up better than the sector as a whole and is only down about half as much YTD. That’s because it’s a legendary and popular income stock. The yield is also sufficiently higher than fixed rate alternatives at this point. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 3.7%) – It’s yet another new high. I say the same thing every week. And that’s a very good thing. The market stinks this year, but nobody told ABBV. The biopharmaceutical company stock has been marching to its own drum and continues making new highs. It’s up about 10% this year. The fantastic pipeline is coming to fruition. Its new drugs are getting approved for more indications. And investors are realizing that AbbVie has the fire power to overcome the Humira competition in 2023. HOLD

Broadcom Inc. (AVGO – yield 2.8%) – We’re riding out the tech route with this legendary technology company stock. The recent ride should be worth it because business is booming as Broadcom benefits from the 5G rollout and should also benefit from increased internet usage further out. The tech selloff has leveled off and AVGO is well off the recent lows. Investors never sour on technology for too long; it’s where all the growth is. I expect AVGO to be a lot higher later in the year. HOLD

Brookfield Infrastructure Partners (BIP – yield 3.6%) – This defensive infrastructure partnership just continues to do its thing regardless of the market trends. It remains near the high and on a long-term slow and bouncy uptrend. Reliable and growing income and solid dividends never really go out of style. The stock probably would have performed about the same if the market was up 20% so far this year. I expect more of the same going forward—slow and reliable appreciation and income. (This security generates a K1 form at tax time.) HOLD

Chevron Corp. (CVX – yield 4.3%) – The energy powerhouse stock is only a little off the high and moving higher today. There’s a lot to like with CVX. Oil prices are skyrocketing with no end in sight. Energy stocks are hot and should continue to have a good year. The high demand and high prices should continue to juice earnings. Meanwhile, CVX still sells at a cheap valuation, even by energy sector standards. I expect the good times to roll. HOLD

Eli Lilly and Company (LLY – yield 1.6%) – The big pharma company stock has been very bouncy. The latest bounce has been down. Earnings soundly beat expectations, but its Covid treatment drug, which is not approved for Omicron, will take a little off future earnings quarters. But the long-term situation is still strong. It still has the likely approval of its potential mega-blockbuster Alzheimer’s drug later this year. HOLD

Qualcomm Inc. (QCOM – yield 1.6%) – The chip maker stock mostly hangs around near the top of the recent range after the big surge in November. But it also tends to dip lower when the market gets particularly ugly for tech stocks. It’s coming off one of those dips now. QCOM is a tough call from here. Technology stocks don’t like inflation and rising rates and that is a situation that should last throughout the year. But QCOM is in an exceptional growth period and should continue to outperform the sector. HOLD

Spectrum Brands Holdings, Inc. (SPB – yield 1.8%) – We sold half of this position two weeks ago as shares had been very weak in the tough market. But SPB has since trended higher. Spectrum is a standout consumer stock because of its high-growth, home-centric focus. But it has had some difficulty maintaining margins in this inflationary environment. I like the stock and will give the remaining one-half position a chance to recover. But I’m watching it closely. HOLD

U.S. Bancorp (USB – yield 3.2%) – This regional bank stock has been indecisively bouncing around. It took a hit in the recent down market and is attempting a recovery from there. But I think the environment should be very supportive this year as the economy still grows above trend and interest rates likely rise. It’s tough to say what the stock will do in the near term, but I expect it to be higher six months from now. HOLD

Valero Energy Corp. (VLO – yield 4.6%) – The refiner stock has pulled back a little bit after a big up move over the past few months. It may take a breather for a while here but the prospects are still strong for the rest of the year. Profits are soaring as prices and demand for refined products remain strong. Plus, refining crack spreads, the difference between the cost and price of refined products, recently hit multi-year highs. Yet the stock is still below the pre-pandemic highs. It should have more to go. HOLD

Visa Inc. (V – yield 0.7%) – The card company stock has been pulling back after a big surge. That’s normal for this stock. But as long as business remains strong I expect V to find a higher level in the months ahead. International business is picking up as are the very profitable cross-border transactions as travel returns. The stock should continue to have a good year as the international recovery complements already booming U.S. business. BUY

Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – The ETF has fallen a bit in price over the past several months as rising interest rates and inflation have affected it. Preferred stocks tend to hold up relatively well in those conditions, but they are not immune. We will watch PGX for further weakness going forward. Only half of the position remains but any further weakness from here will likely prompt selling the shares. HOLD

NextEra Energy (NEE – yield 2.0%) – This alternative energy utility stock is having a terrible year. It’s down more than 20% YTD. It has bounced off the recent lows, but I’m watching it closely. Earnings were stellar but the company announced a management change that the market didn’t like. This market has also shunned low-yielding stocks in this rising interest rate environment. The rating was reduced to HOLD last week and will remain under watch until NEE shows more evidence of reversing the downside trend. HOLD

Xcel Energy (XEL – yield 2.8%) – This smaller alternative energy utility stock had been on a sustained uptrend for several months until it rolled over a couple of weeks ago. Hopefully, XEL can get some traction and start trending higher again in the next several weeks. But XEL was downgraded to a HOLD until it shows more evidence of reversing the recent downside. I love the stock longer term as clean energy should come back in vogue eventually. But I’m watching it closely. HOLD

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
Total ReturnCurrent YieldCDI OpinionPos. Size
CIIBlackrock Enhanced Cap & Inc. (CII)07-13-2121Monthly1,125.6%21-3%6.1%BUY1
EPDEnterprise Product Partners (EPD)02-25-1928Qtr.1.808.30%234%8.0%BUY1
GSLGlobal Ship Lease. Inc. (GSL)01-12-2223Qtr.1.506,41%2313%4.0%BUY1
OKEONEOK Inc. (OKE)05-12-2153Qtr.3.746.00%6120%6.2%BUY1
ORealty Income (O)11-11-2062Monthly2.814.2%6613%4.5%HOLD1
Current High Yield Tier Totals:6.2%12.5%5.7%
Dividend Growth Tier
ABBVAbbVie (ABBV)01-28-1978Qtr.5.204.8%147120%3.7%HOLD2/3
AVGOBroadcom Inc. (AVGO)01-14-21455Qtr.14.402.6%59031%2.8%HOLD1
BIPBrookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.043.6%5981%3.6%HOLD2/3
CVXChevron Corporation (CVX)02-10-2190Qtr.5.164.7%13552%4.3%HOLD1
DFSDiscover Financial Services (DFS)02-09-22125Qtr.2.001.6%128-2%1.6%BUY1
LLYEli Lily and Company (LLY)08-12-20152Qtr.3.401.3%26661%1.6%HOLD2/3
QCOMQualcomm (QCOM)11-26-1985Qtr.2.601.5%184106%1.6%HOLD1/3
SPBSpectrum Brands Holdings, Inc. (SPB)08-11-2181Qtr.1.681.6%8713%1.8%HOLD1/2
USBU.S. Bancorp (USB)12-09-2045Qtr.1.683.2%5731%3.2%HOLD1
VLOValero Energy Corp (VLO)06-26-1984Qtr.3.925.7%8618%4.6%HOLD1/2
VVisa Inc. (V)12-08-21209Qtr.1.500.7%2326%0.70%BUY1
Current Dividend Growth Tier Totals:2.8%40.3%2.7%
Safe Income Tier
PGXInvesco Preferred (PGX)04-01-1414Monthly0.744.9%1444%4.9%HOLD1/2
NEENextEra Energy (NEE)11-29-1844Qtr.1.541.7%7379%2.1%HOLD1/2
XELXcel Energy (XEL)10-01-1431Qtr.1.832.8%65171%2.8%HOLD2/3
Current Safe Income Tier Totals:3.1%98.0%3.3%

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