Cabot Dividend Investor Update February 3, 2016
Chloe Lutts Jensen, Chief Analyst
The stock market remains volatile and we continue to advise a cautious stance overall. While Friday brought a strong rally sparked by Japan’s new negative interest rate policy, we’ve also seen sharp pullbacks this week, with the latest coming just yesterday after oil prices declined. So while the market has strengthened by some accounts, it hasn’t exactly been the greed-driven rebound we’d expect to see if January’s lows represented the bottom. In other words, there’s still a lot of selling pressure out there.
The silver lining is that today’s extremely bearish sentiment and the large number of new 52-week lows are characteristic of market bottoms. Even if January didn’t mark the ultimate bottom, it could be one point in a longer bottoming process.
We have one portfolio change today: I’m selling half of Nordic American Tankers (NAT) from the High Yield tier based on the stock’s lousy technical action. But there are still plenty of strong performers in our portfolio, including our newest buys, Mattel (MAT) and CVS Health (CVS). Read on for details on recent earnings reports and more.
HIGH YIELD TIER
HOLD – General Motors (GM 30 – yield 5.1%)
– GM is trading in a tight range between about 28.50 and 30 ahead of the company’s fourth-quarter and full-year 2015 earnings announcement today. Analysts expect the car company to report EPS of $1.22 for the fourth quarter and $4.84 for the full year, up 2.5% and 58.7%, respectively. GM reported better-than-expected sales in January, despite a serious blizzard on the East Coast. In addition, some members may have noticed that the stock was chosen as February’s Cabot Stock of the Month by our president, Timothy Lutts. GM is trading at a P/E of 11 and remains a solid Hold for high yield and value investors.Next ex-div date: March 8, 2016 est.
BUY – Mattel (MAT 30 – yield 5.0%) – MAT gapped up to its highest level since April yesterday, after reporting earnings on Monday. Fourth-quarter EPS of 63 cents beat the analyst consensus by 3% thanks to strong holiday sales of Barbie, Hot Wheels and Matchbox toys. And the company’s turnaround continues, with Mattel announcing a range of new body shapes and skin tones for Barbie dolls last week. MAT is a Buy on pullbacks for high yield investors with high-risk tolerance.
Next ex-div date: February 12, 2016
SELL HALF/HOLD – Nordic American Tanker (NAT 12 – yield 14.4%) – NAT has declined another 7% since our last update, pushing our loss to nearly 20%. We’re going to sell half the position today to reduce risk, and will unload the rest later this week if support fails to materialize. The spot shipper typically benefits from low oil prices, but Suezmax rates have been weak year-to-date, and longer-term, analysts expect the market to weaken as new ships come online in the second half of 2016. Investors looking to reduce risk will want to sell some, or all, of their NAT position here.
Next ex-div date: April 25, 2016 est.
DIVIDEND GROWTH TIER
BUY – Costco (COST 149 – yield 1.1%)
– COST is trading in a solid range just above its 200-day moving average, and I’m keeping the stock on Buy for risk-tolerant investors for now.Next ex-div date: February 10, 2016
BUY – CVS Health (CVS 95 – yield 1.8%)
– CVS was added to our portfolio at Monday’s average price of 96.73. The latest addition to our Dividend Growth tier, high-quality CVS is a Buy for investors interested in value and dividend growth. The company will report earnings on February 9, and analysts are currently expecting quarterly EPS of $1.53 on revenue of $41.12 billion, up 26% and 11%, respectively. For the full year, consensus estimates put EPS at $5.17, up 15%, and revenue at $153.25 billion, 10% higher than in 2014.
Next ex-div date: April 20, 2016 est.
HOLD – Equifax (EFX 104 – yield 1.1%) – EFX is advancing off its 200-day moving average on little news and light volume. The credit tracking agency will report earnings after the market close on February 10. Analysts expect EPS of $1.11 for the quarter, up 8.8%, and $4.47 for the full year, nearly 15% higher than in 2014. EFX is a Hold.
Next ex-div date: February 19, 2016 est.
SOLD – Maiden Holdings (MHLD 13 – yield 4.3%)
– I recommended selling MHLD in last Wednesday’s issue, after the stock fell to new 52-week lows. We recorded the sale at the day’s average price of 13.09 for a total return of 13%. Financials are being battered by falling oil prices and persistently low interest rates, and MHLD was the latest casualty of the selloff. If you haven’t already, sell Maiden Holdings.
Next ex-div date: n/a
Next ex-div date: March 18, 2016 est.
BUY – Reynolds American (RAI 50 – yield 2.9%)
– RAI hit a new 52-week high Monday, buoyed by cautious investors flocking to defensive stocks. The cigarette company will report earnings on February 11, and analysts are expecting 42.6% sales growth and 13.6% EPS growth for the quarter. RAI is a Buy on pullbacks.
Next ex-div date: March 6, 2016 est.
HOLD – U.S. Bancorp (USB 39 – yield 2.6%)
– USB remains near but above its lows from mid-January. We’re watching the stock carefully—oil prices’ renewed pullback could deal another hit to financials—but so far are comfortable holding above 38, where our loss remains below 15%. More risk-averse investors may want to sell part of their position here.
Next ex-div date: March 29, 2016 est.
SAFE INCOME TIER
BUY – Consolidated Edison (ED 71 – yield 3.8%)
– Like Reynolds American, ConEd is benefiting from an influx of cash into defensive securities. As I said last week, you may want to take some profits while ED is at 52-week high (we’re already down to a two-thirds position after taking some profits a year ago). The utility will report earnings on February 18.Next ex-div date: February 12, 2016
BUY – Guggenheim BulletShares 2016 High Yield Corporate Bond ETF (BSJG 26 – yield 3.4%)
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.3%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 23 – yield 4.9%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.0%)
No news.
Next ex-div dates: all March, 2016, est.
BUY – Home Depot (HD 125 – yield 1.9%)
– HD is holding up well and remains a good conservative Buy for all investors. The home improvement retailer will report fourth-quarter and full-year earnings on February 23. Analysts are expecting EPS of $1.10 for the quarter on revenue of $20.37 billion, up 10% and 6% year-over-year, respectively. For the full year, estimates average $88.12 billion for revenue and $5.34 for EPS, representing year-over-year growth of 5.9% and 17%, respectively. HD is a high-quality dividend payer and a long-term Buy for all investors.
Next ex-div date: March 1, 2016 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.7%)
– No news.
Next ex-div date: February 12, 2016 est.
HOLD – Target (TGT 73 – yield 3.1%)
– TGT had a good week, advancing on every one of the last six trading days. Analysts expect 2.7% quarterly EPS growth and 0.7% revenue growth when the retailer announces earnings on February 24.
Next ex-div date: February 12, 2016
BUY – Xcel Energy (XEL 39 – yield 3.3%)
– XEL reported earnings that just met analyst expectations last week, sending the stock to new 52-week highs, although the rotation into defensive securities likely played a larger part than the earnings. XEL remains a Buy on pullbacks for all investors.
Next ex-div date: March 15, 2016 est.
Closing prices as of February 2, 2016.
