The S&P 500 has closed unchanged for the past two days, killing time until Janet Yellen’s speech this afternoon. Many of our stocks are also in a holding position of sorts, awaiting the Chairwoman’s decision on interest rates. Interest rate hike expectations had been swinging wildly in recent weeks, but haven’t had much fodder to digest since last Monday.
Investors still appear to be shifting into more growth-oriented names in advance of the announcement, anticipating (and causing) a selloff in conservative and high yielding “bond alternatives.” As a result, the more growth-oriented Nasdaq is now outperforming the Dow and S&P 500. I’m putting Wynn (WYNN), one of our growthiest names, back on Buy today after the stock finally broke out of its multi-month trading range.
HIGH YIELD TIER
HOLD – General Motors (GM 32 – yield 4.8%) – GM popped back to 32 this week after Morgan Stanley upgraded the stock. The analyst highlighted the company’s investments in transportation technology—including Lyft, self-driving cars and the all-electric Bolt—while emphasizing GM’s still-strong position in the “traditional” auto market. GM remains a long-term Hold and could be a shorter-term Buy on a break through 32.
Next ex-div date: December 8, 2016 est.
BUY – Mattel (MAT 32 – yield 4.8%) – MAT drifted lower for most of last week, until popping higher on an analyst upgrade Monday. MAT is stuck in a trading range between 30 and 35 but remains a long-term Buy as the company’s turnaround begins to translate into strong revenue and earnings growth.
Next ex-div date: November 21, 2016 est.
BUY – Pattern Energy (PEGI 23 – yield 6.8%) – PEGI continues to consolidate around 24. The yieldco is a Buy for income-oriented short- and medium-term investors (note that dividends are classified as return of capital).
Next ex-div date: September 28, 2016
BUY – Pembina Pipeline (PBA 30 – yield 4.9%)
– PBA has been trading sideways around 30 since the beginning of May, with occasional pullbacks caused by energy sector selloffs. The Canadian pipeline company is a Buy for risk-tolerant high-yield investors. Note that PBA trades ex-dividend today.
Next ex-div date: September 21, 2016
DIVIDEND GROWTH TIER
BUY – AbbVie (ABBV 63 – yield 3.6%) – ABBV is looking a little tired this week, trading below its 50-day moving average and generally drifting lower. I still like the investment thesis—pharmaceutical companies are personae non gratae on Wall Street these days and AbbVie’s forward earnings are heavily discounted because of uncertainty about Humira’s patent protection. But I want the stock to show some life soon if it’s going to keep its place in our portfolio.
Next ex-div date: October 12, 2016
BUY – Amgen (AMGN 173 – yield 2.3%)
– After testing its 50-day moving average in the September 9 selloff, AMGN has rallied nicely over the past week and a half, staying well above its 50-day line. The company received good news from its late-stage clinical trials of Repatha, a cholesterol-lowering drug. AMGN is a Buy for dividend growth investors with medium risk tolerance.
Next ex-div date: November 10, 2016 est.
HOLD – Costco (COST 152 – yield 1.2%)
– As hoped, COST found support at 150, and is rebounding slightly this week. The warehouse retailer will report fourth-quarter and full-year results September 29, after the market closes. Analysts are expecting revenues to climb 3.3%, to $36.97 billion, while profits stay flat at $1.73 per share. Hold.
Next ex-div date: November 9, 2016 est.
HOLD – CVS Health (CVS 90 – yield 1.9%) – We sold half our stake in CVS last week, after which the stock found support at 90, around the same level where it bottomed during February’s shakeout. We’ll see if support holds here—analysts still expect double-digit earnings growth this year and next, but will sell the rest of our position if it doesn’t.
Next ex-div date: October 20, 2016 est.
HOLD – Equifax (EFX 132 – yield 1.0%)
– EFX got volatile this week, trading both above and below its 50-day line on most days. The stock’s action isn’t inspiring but we sold half our position this summer so we’ll keep the rest on Hold for long-term gains.
Next ex-div date: November 21, 2016 est.
HOLD – Reynolds American (RAI 48 – yield 3.9%)
– As noted last week, tobacco stock RAI is likely to be an underperformer in the near-term, as investors shift out of conservative, high-yielding stocks in favor of more growth-oriented investments. If you haven’t taken profits yet, do so now. We’re holding a half position for the time being, mindful that these rotations out of yield stocks can reverse at the slightest signal from the Fed.
Next ex-div date: December 6, 2016 est.
HOLD – U.S. Bancorp (USB 43 – yield 2.4%) – U.S. Bancorp boosted its dividend by 9.8% this week, to 28 cents per share per quarter. The increase had been approved by the Fed in June. The bank also held an analyst day this week; management emphasized their industry-leading results while also acknowledging the challenging environment facing the financial industry. Management has revised certain long-term expectations lower as a result, including adjusting their return on equity target from 16%-19% to 13.5%-16.5%. Their current expectations rest on updated economic expectations that include 25 basis point interest increases in June and December of 2017 and 2018 and a return to U.S. GDP growth of 2% to 3% by 2018. USB remains range-bound but has the potential to be an outperformer once the pressure on its sector lifts.
Next ex-div date: September 28, 2016
BUY – Wynn Resorts (WYNN 103 – yield 1.9%) – Wynn’s strength earned the stock a spot in Cabot Top Ten Trader this Monday, where our growth expert Mike Cintolo wrote “The stock hit 103 in June and 104 in July before getting knocked back to 89 at the end of August. Now it’s stretching out to new 52-week highs, breaking to 108 before pulling back today. That might be all the opening you need, though be wary of a deeper pullback.” Analysts are excited about Wynn’s new resort, opening just as Macau’s tourism industry begins to recover. Wynn is highly volatile, but I’m putting the stock back on Buy today for risk-tolerant dividend growth investors.
Next ex-div date: November 9, 2016 est.
SAFE INCOME TIER
HOLD – Consolidated Edison (ED 77 – yield 3.5%) – Utilities got a little bit of a respite from negative economic data released last week, which lowered the odds of a September rate hike slightly. ED is a long-term Hold for income; for near-term capital appreciation, look elsewhere.Next ex-div date: November 7, 2016 est.
HOLD – Guggenheim BulletShares 2016 High Yield Corporate Bond ETF (BSJG 26 – yield 1.8%)
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.3%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.5%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
These four BulletShares ETFs make up our bond ladder, a conservative strategy for holding fixed income investments with minimal interest rate exposure. For full details on how to create your own bond ladder using the BulletShares funds, see the August 31 issue. The 2016 fund is rated Hold because it’s maturing at the end of this year—at which point we’ll reinvest the proceeds in a 2020 fund (specifically, the BulletShares 2020 High Yield Corporate Bond ETF, BSJK) to keep the bond ladder intact.
Next ex-div dates: all October 3, 2016 est.
HOLD – Home Depot (HD 127 – yield 2.2%)
– After its big slide early this month, HD has found support at 125, the same level where it bottomed in June. HD’s long-term trend is still up, but shorter-term, the stock is lacking momentum, and the future of the housing sector is muddy. Hold.
Next ex-div date: December 6, 2016 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.7%)
– If you’ve been waiting for a low-risk entry point into PGX, this month’s pullback is a good opportunity. The ETF is still trading slightly above 15, but I’ll put it back on Buy for investors looking to add to the conservative segment of their portfolio. The preferred share ETF pays monthly dividends, usually of about seven cents per share, but offers no capital appreciation potential.
Next ex-div date: October 14, 2016 est.
HOLD – J.M. Smucker (SJM 136 – yield 2.2%)
– SJM has traded sideways since my last update, when we sold half our position because of technical weakness. The company’s pet food business is struggling, worrying analysts. In addition, the stock could be a loser in the shift out of conservative yield names. We’ll hold the remainder of our position for now.
Next ex-div date: November 9, 2016 est.
BUY – UPS (UPS 108 – yield 2.9%)
– UPS has started to come out of its pullback, and the shipper remains a good Buy for dividend growth and safe income investors.
Next ex-div date: November 23, 2016 est.
HOLD – Xcel Energy (XEL 42 – yield 3.3%) – Minnesota-based utility Xcel Energy remains a long-term holding for income.
Next ex-div date: January 2017
Closing prices as of September 20, 2016.
