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Dividend Investor
Safe Income and Dividend Growth

January 19, 2022

Inflation is going on. And it’s starting to sink in. Oil prices are soaring. Interest rates are rising. And the Fed is going to have to be more aggressive than previously anticipated about raising rates and reducing stimulus.

Worrisome Vibes
So far, 2022 is crummy.

The S&P 500 is down 4.5% for the year. Of the 11 S&P 500 sectors, 9 are in negative territory YTD. The worst-performing sector is technology, down 7%. The two positive sectors are energy and finance. The financial sector is just up slightly, but energy stocks are a whopping 17% higher in just the first two and a half weeks.

What’s going on?

Inflation is going on. And it’s starting to sink in. Oil prices are soaring. Interest rates are rising. And the Fed is going to have to be more aggressive than previously anticipated about raising rates and reducing stimulus.

Energy and financial stocks are doing great because they like inflation and rising interest rates. But technology and other growth stocks are getting hammered by the prospect of rising interest rates, as investors fear it will reduce profit margins. The rest of the market is adjusting to the reality of inflation and rising interest rates.

Of course, inflation and rising rates were inevitable long before the market started getting pissy about it. But somehow those things are just now becoming real. And it’s earnings season. Stellar and much better than anticipated earnings have saved and reinvigorated this market throughout the magnificent recovery. Can they do it again?

So far, earnings results have been mixed. It’s still very early, but this market will need another fabulous earnings season to overcome the fact that the market is expensive and problems are growing. Earnings are key. Everything else is fluff. What truly matters is earnings. If profits are booming, investors can overlook that other stuff.

We’ll keep a close eye on how profits are trending this season. Great earnings will be crucial if this market is to keep trending higher.

In the meantime, the energy stocks in the portfolio are doing great. And most of the other positions are holding their own. But there is a sale this week in AGNC.

High Yield Tier
Rating change “SELL ½” to “SELL”
AGNC Investment Corp. (AGNC – yield 9.5%) – Half of the position was sold in last week’s monthly issue because the stock was not reacting positively to the realization of the awaited catalyst, rising long-term rates and a steepening yield curve. Since last week, rates have moved even higher, and the stock actually went down. The remaining one-half position is being sold this week.

This is the Promised Land. And the stock still flounders. The central rationale for buying and owning AGNC is that interest rates are likely to rise and AGNC should benefit. Higher long-term rates increase spreads and profits for this mortgage REIT. The 10-year Treasury just hit a two-year high. Other yield curve sensitive stocks (namely USB) have reacted positively. But not AGNC.

When the anticipated catalyst for moving higher occurs but the stock doesn’t cooperate, it’s time to get out. It is likely that the negative effect of the Fed tapering its bond buying program, which includes U.S. government agency mortgage-backed securities, is outweighing the benefit of a steeper yield curve. The selling is putting downward pressure on valuation and the portfolio value. SELL

Blackrock Enhanced Capital and Income Fund (CII – yield 5.6%) – This covered call ETF does mimic the general direction of the market, which has been down. But CII should be a good place to be over the course of this 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 going forward. BUY

Enterprise Product Partners (EPD – yield 7.8%) – It may be a rough time for the overall market. But it’s a glorious time for EPD. The energy sector rally has reignited the upward movement in this midstream energy partnership. It’s up 17% in the last month. And that price move is a compliment to the stratospheric yield, which is safe. The stock has been an obscenely undervalued laggard. This move is more than justified. Let’s hope it continues. (This security generates a K1 form at tax time). BUY

Global Ship Lease, Inc. (GSL – yield 6.1%) – The shipping business is booming. And stock prices are still cheap after a horrible decade for the industry. While elevated shipping rates may be temporary for the overall industry, containership rates have a lot more staying power. The dividend was recently raised by 50% to 0.375 per quarter. Many information services don’t account for that and show a yield of 4%. Hopefully, the stock keeps going higher as business booms. BUY

ONEOK Inc. (OKE – yield 6.0%) – This midstream energy stock has been moving higher over the past month along with the rest of the energy sector. But the move has lagged the sector and even the typically slower-moving EPD. It’s likely because there isn’t as much slack in OK after it returned a whopping 69% in 2021. That said, OKE is still below the 52-week high and a long way below the pre-pandemic high, despite having higher earnings now. BUY

Realty Income (O – yield 4.1%) – Despite a rough year so far for REITs (the sector is down 7.5% YTD) O is hanging tough not far from the recent high. The relative strength is encouraging. O is still well below the pre-pandemic high for no good reason. I like the way the stock is situated going forward as earnings are growing at a better than average clip because of the recent acquisition, and investors should gravitate toward safer dividend stock in a choppier 2022. HOLD

STAG Industrial (STAG – yield 3.4%) – This industrial REIT has not held up as well as O through the REIT selloff, probably because it had been flying so high before. STAG returned 60% in 2021. The stock has some technical support around the current level. Hopefully it moves higher again from here. The industrial properties are in high demand and short supply and STAG is a great way to get a strong monthly income without sacrificing growth of principle. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.2%) – The biopharmaceutical company stock has leveled off this month after a truly magnificent December. But it still isn’t going anywhere. ABBV is still higher than the December high and up for the month. It just stopped going straight up and has been bouncing around in this challenging market. I’m encouraged by the recent behavior and hopefully there’s more surge left in the weeks ahead. HOLD

Broadcom Inc. (AVGO – yield 2.8%) – Ouch! This legendary technology stock has really been stinking up the place lately. The technology sector selloff has not spared AVGO. After soaring over 40% higher from early October through December, AVGO has crashed 15% in the past two weeks. There is no bad news at the company. Business is strong and the stock is still relatively cheap. I suspect it’s a double whammy. AVGO was due for a consolidation after a huge run, and the tech selloff hit at the same time. But I consider this short-term volatility for a long-term winner. HOLD

Brookfield Infrastructure Partners (BIP – yield 3.4%) – This infrastructure partnership is still not far from the recent high. It is hanging strong in an environment that has been tough for defensive dividend payers, that’s good. BIP has been on an uptrend since the market bottom in March of 2020, albeit a slow and sometimes choppy one. It’s still looks solid, and earnings should be strong, reflecting the new acquisition. (This security generates a K1 form at tax time). HOLD

Chevron Corp. (CVX – yield 4.1%) – It’s good to be Chevron these days. The energy sector is on fire and CVX keeps making new highs. The stock has finally eclipsed the pre-pandemic high but it’s still a little below the all-time high. Oil prices are rising with no end in sight. Demand is strong. Good volume at high prices will surely juice profits for this energy giant. It should have further to run. HOLD

Eli Lilly and Company (LLY – yield 1.6%) – This is a great company and a great stock. But it is awfully bouncy. LLY made new highs last month but has been pulling back so far this year. But that’s normal behavior for this stock. LLY returned about 70% in 2021 on the strength of its new drugs and pipeline as well as the prospect of an approval for its Alzheimer’s drug later this year. That story is intact. LLY should move higher again after the recent pullback. HOLD

KKR & Co. Inc. (KKR – yield 0.8%) – The stock has been trending lower since hitting the high in early November. It hasn’t gotten much traction recently despite the rally in financial stocks this year. Business is still strong, and the company should have a good year in 2022. But this stock needs to break the downtrend. I will keep a close eye on it going forward. HOLD

Qualcomm Inc. (QCOM – yield 1.5%) – Say it ain’t so. Not you Qualcomm. This stock had been hanging so tough near the high after the recent surge and despite weakness in the technology sector. But it seems to be making up for lost time this week. QCOM is down 8.5% from last Friday’s close. The technology weakness this week has just been too strong. But I still like the prospects for QCOM this year. It’s may go down more but I think that would create a buying opportunity. HOLD

Spectrum Brands Holdings, Inc. (SPB – yield 1.7%) – Since being added to the portfolio the stock soared after the announcement of the sale of its home improvement division. It then got another big bump and made a new high after last quarter’s earnings. It has since been bouncing around. In this tortured market of late, the recent bounce is down, a lot. This market has been tough on anything that isn’t energy or finance. I still like the prospects longer term though. HOLD

U.S. Bancorp (USB – yield 3.2%) – This regional bank stock was having a great year, until today. Earnings fell short of expectations on both earnings and revenue and USB is down over 6% so far today. I believe it’s an overreaction. It only slightly missed estimates. Plus, the stock had been rallying along with the rise in interest rates, as higher net interest spreads are good for profits. But that interest rate increase isn’t reflected in the last quarter. It bodes well for earnings next quarter. HOLD

Valero Energy Corp. (VLO – yield 5.5%) – My how things are changing. VLO had been a dog while the market kicked butt through most of the recovery. Now, the market is taking it on the chin and VLO is soaring. It just made a new post-pandemic high and is up over 13% for the month and 27% since the beginning of December. The market loves energy as prices are soaring with no end in sight and demand is strong. These stocks actually like inflation. Hopefully the run continues. The stock is still cheap ahead of likely boom times for the refining business in the quarters ahead. HOLD

Visa Inc. (V – yield 0.7%) – The card company stock has been strong. It had a temporary blip a few weeks ago, but it looks like the stock is back in business again. V should benefit from the international recovery this year, which has lagged the U.S. recovery. As travel returns, the very profitable cross-border transactions should get a big boost while 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%) – This alternative energy utility turned from a juggernaut to a goat in a hurry. It moved over 20% higher in the last few months of last year and made a new all-time high. But NEE is down 11% in the first two and a half weeks of this year. Both utilities and alternative energy have been down so far this year. But the longer-term uptrend is still intact, and I expect NEE to level off soon and even move higher again if the market stabilizes. BUY

Xcel Energy (XEL – yield 2.7%) – This alternative energy utility stock is holding its own. Despite the crummy market so far, XEL is up YTD. It’s probably doing better than NEE because it started the year cheap and still a long way from the high. The uptrend remains intact, and I expect XEL to make a run at the 52-week high. 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%15-7%9.5%SELL1
Blackrock Enhanced Cap & Inc. (CII)07-13-2121Monthly1,125.6%213%5.6%BUY1
Enterprise Product Partners (EPD)02-25-1928Qtr.1.808.30%246%7.8%BUY1
Global Ship Lease. Inc. (GSL)01-12-2223Qtr.1.506,41%256%6.1%BUY1
ONEOK Inc. (OKE)05-12-2153Qtr.3.746.00%6121%6.0%BUY1
Realty Income (O)11-11-2062Monthly2.814.2%6919%4.1%HOLD1
STAG Industrial (STAG)03-21-1824Monthly1.453.3%43116%3.4%HOLD1/2
Current High Yield Tier Totals:5.5%33.6%5.5%
Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.204.8%136107%4.2%HOLD2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.402.6%59032%2.8%HOLD1
Brookfield Infrastucture Ptrs (BIP)03-26-1941Qtr.2.043.6%6081%3.4%HOLD2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.164.7%11847%4.1%HOLD1
Eli Lily and Company (LLY)08-12-20152Qtr.3.401.3%26666%1.6%HOLD2/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.580.8%6745%0.8%HOLD1/2
Qualcomm (QCOM)11-26-1985Qtr.2.601.5%184122%1.5%HOLD1/3
Spectrum Brands Holdings, Inc. (SPB)08-11-2181Qtr.1.681.6%9920%1.7%HOLD1
U.S. Bancorp (USB)12-09-2045Qtr.1.683.2%5841%3.2%HOLD1
Valero Energy Corp (VLO)06-26-1984Qtr.3.925.7%8516%5.5%HOLD1/2
Visa Inc. (V)12-08-21209Qtr.1.500.7%2153%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%1555%4.9%HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.541.7%8397%1.7%BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.832.8%68180%2.7%BUY2/3
Current Safe Income Tier Totals:3.1%110.7%3.1%

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