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Income Advisor
Conservative investing. Double-digit income.

Cabot Income Advisor Issue: December 27, 2022

Better Times are Coming

This year is coming to an end. Good riddance. It was an awful year for the market. The S&P 500 is down 20% for the year and things are likely to get worse before they get better.

2022 reminds us that superior returns in the stock market aren’t for free. Years like this are the price we pay to grow our wealth over time. But history clearly shows that this year is unusual, and things should get a whole lot better in 2023.

In the 42 years since 1980, there have only been 7 calendar years of negative market returns and 35 years of positive returns. Of those 7 negative years, 5 were followed by years when the market rebounded at least 20%.

Stocks trend higher over time. And history clearly illustrates that bear markets are ideal times to invest ahead of the next bull market. The average bear market is about 15 months long. And this one is already almost a year old. There is a high-percentage chance that a rally ignites in 2023 that will lead us out this bear market and into the next bull market.

There should be tremendous opportunities to get some great stocks at cheap prices in the new year. Our emotions tell us to get sad when we see our statements because the portfolio value has fallen. But history tells us that we should be excited because better times are surely ahead.

I fully expect to be bragging about the returns in the final issue of next year. But things may very well get worse in the first quarter of the year. Although the market tends to anticipate six to nine months into the future, it cannot yet see past inflation, rising interest rates, and a looming recession. That’s why the portfolio continues to play it safe with defensive stocks and covered calls following market rallies.

In this issue I target a call on a defensive stock that is holding up well in this market. While I do like the prospects for the stock in the year ahead, I don’t trust this market. A fall in the indexes sufficient to make a new low is likely to take just about every stock down with it. The recent buoyant market and higher stock prices presents a great opportunity to lock in a high income ahead of a challenging market in early 2023.

What to do now

It’s a tale of two portfolios. The older and more cyclical positions are down a lot. But everything added in the second half of the year is a defensive position that has held up well and presented the opportunity to sell covered calls.

Why not just sell the cyclical positions? After all, I am expecting the market to make a new low in 2023. There are few reasons for holding on. One, most of the stocks pay a huge income. I expect the market to turn eventually, and all these stocks have the ability to make up for lost time when the market recovers. You get a big income while waiting for better days.

Plus, there is a risk to owning all defensive stocks because you expect the market to get worse. I could be wrong. The market is highly unpredictable in the near term. Stocks could take off sooner than most currently expect. That happened during the pandemic. The cyclical stocks provide upside leverage in case that happens.

For now, the midstream energy companies, ONEOK (OKE) and The Williams Companies (WMB), are the best portfolio stocks to buy. Not only do they provide a high income, but these companies have the ability to thrive during times of both inflation and recession. Plus, OKE and WMB are still reasonably priced ahead of what should be a season of relative outperformance.

I do like the other safe stocks as well, including Realty Income (O), Xcel Energy (XEL), and Brookfield Infrastructure Corp. (BIPC). These stocks also offer defensive characteristics that investors should continue to value in a rough market.

We’ll play defense for now with an eye toward getting more aggressive sometime in 2023.

Monthly Recap

December 7
Sell O January 20 $65 calls at $2.35 or better – Remove

December 28
Sell O February 17 $62.50 calls at $3.00 or better

Featured Actions: Sell O February 17 $62.50 calls at $3.00 or better

Expiration date: February 17
Strike price: $62.50
Call price: $3.00

Realty Income Corporation (O)
O is a legendary income stock that went on a fire sale after the fall selloff and has since recovered very nicely. The stock has leveled off and pulled back slightly over the past month and a half as the market has gotten choppier. I like this stock going forward but I still don’t trust this market. Let’s assure a strong income return.

Here are the three scenarios.

1. The stock closes above the $62.50 strike price at expiration.
Call premium: $3.00
Dividends: $1.25 (10/15, 11/15, 12/15. 1/15, 2/15)
Appreciation: $2.13 ($62.50 strike price minus $60.37 purchase price)
Total: $6.38 (total return will be 10.6% in 5 months)

2. The stock price closes below but near our $62.50 strike price.
Call premium: $3.00
Dividend: $1.25
Total: $4.25 (total income of 7.0% in 5 months)

3. The stock price declines.
There will be $4.25 in income to offset the decline. Plus, the original purchase price was over $2 per share below the strike price.

Portfolio Updates


Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Qualcomm Inc. QCOM5/5/21$134.65$110.84NA2.71%-14.79%
Visa Inc.V12/22/21$217.96$205.83NA0.87%-4.84%
Global Ship Lease, Inc.GSL2/23/22$24.96$17.11NA8.77%-27.31%
ONEOK, Inc.OKE5/25/22$65.14$65.56$67.005.70%3.83%
Star Buld Carriers Corp.SBLK6/1/22$33.30$20.36NA31.93%-26.80%
Intel CorporationINTC7/27/22$40.18$26.09NA5.60%-33.55%
The Williams Companies WMB8/24/22$35.58$33.32$38.005.10%-3.88%
Realty Income CorporatonO9/28/22$60.37$64.41$63.004.63%8.00%
Xcel Energy Inc.XEL10/26/22$62.57$70.93$65.002.75%13.36%
Brookfield Infrastructure corp.BIPC11/9/22$42.43$40.43$46.003.56%-3.96%
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
OKE Jan 20 $65 callOKE230120C00065000Sell 11/25/22$3.70$1.53$2.345.68%
XEL Jan 20 $65 callXEL230120C00065000Sell 11/25/22$5.00$4.60$5.607.99%
O Feb 17 $62.50 callO230217C00062500Sell pending$3.00$3.004.97%
as of close on 12/24/2022
SecurityTicker Symbol ActionEntry DateEntry PriceSale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/20$87.829/18/20$100.0015.08%
U.S. BancorpUSBCalled 7/22/20$36.269/18/20$383.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/20$41.9210/16/20$458.49%
Starbucks Corp.SBUXCalled8/26/20$82.4110/16/20$886.18%
Visa CorporationVCalled 9/22/20$200.5611/20/20$2000.00%
AbbVie Inc.ABBVCalled6/2/20$91.0412/31/20$10012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/20$18.141/15/21$2015.16%
Altria GroupMOCalled 6/2/20$39.661/15/21$407.31%
U.S. BancorpUSBCalled 11/25/20$44.681/15/21$451.66%
B&G Foods Inc,BGSCalled10/28/20$26.792/19/21$284.42%
Valero Energy Inc.VLOCalled8/26/20$53.703/26/21$6011.73%
Chevron Corp.CVXCalled12/23/20$85.694/1/21$9612.95%
KKR & Co.KKRCalled3/24/21$47.986/18/21$5514.92%
Digital Realty TrustDLRCalled1/27/21$149.177/16/21$1555.50%
NextEra Energy, Inc.NEECalled2/24/21$73.769/17/21$8010.00%
Brookfield Infras. Ptnrs.BIPCalled1/13/21$50.6310/15/21$5511.65%
AGNC Investment CorpAGNCSold1/13/21$15.521/19/22$155.92%
ONEOK, Inc.OKECalled5/26/21$52.512/18/22$6019.62%
KKR & Co.KKRSold8/25/21$64.522/23/22$58-9.73%
Valero Energy Inc.VLOCalled11/17/21$73.452/25/22$8315.53%
U.S BancorpUSBSold3/24/21$53.474/13/22$51-1.59%
Enterprise Product Ptnrs EPDCalled3/17/21$23.214/14.2022$2411.25%
FS KKR Capital Corp. FSKCalled10/27/21$22.014/14/22$2313.58%
Xcel Energy Inc. XELCalled10/12/21$63.005/20/22$7012.66%
Innovative Industrial Props.IIPRSold3/23/22$196.317/20/22$93-51.23%
One Liberty PropertiesOLPSold7/28/21$30.378/24/22$25-12.94%


SecurityIn/out moneySell DateSell PriceExp. Date$ returnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/20$3.007/17/20$3.003.40%
MO Jul 31 $42 callout-of-money6/17/20$1.607/31/20$1.604.03%
ABBV Sep 18 $100 callout-of-money7/15/20$4.609/18/20$4.605.05%
IIPR Sep 18 $100 callin-the-money7/22/20$5.009/18/20$5.005.69%
QCOM Sep 18 $95 callin-the-money6/24/20$4.309/18/20$4.304.82%
USB Sep 18 $37.50 callin-the-money7/22/20$2.009/18/20$2.005.52%
BIP Oct 16 $45 callin-the-money9/2/20$1.9510/16/20$1.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/20$3.3010/16/20$3.304.00%
V Nov 20 $200 callin-the-money9/22/20$10.0011/20/20$10.004.99%
ABBV Dec 31 $100 callin-the-money11/18/20$3.3012/31/20$3.303.62%
EPD Jan 15 $20 callin-the-money11/23/20$0.801/15/21$0.804.41%
MO Jan 15 $40 callin-the-money11/25/20$1.901/15/21$1.904.79%
USB Jan 15 $45 callin-the-money11/25/20$2.001/15/21$2.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/20$2.402/19/21$2.408.96%
VLO Mar 26 $60 callin-the-money2/10/21$6.503/26/21$6.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/21$4.304/1/21$4.305.02%
AGNC Jun 18 $17 callout-of-money4/13/21$0.506/18/21$0.503.21%
KKR Jun 18 $55 callin-the-money4/28/21$3.006/18/21$3.006.25%
USB Jun 16 $57.50 callout-of-money4/28/21$2.806/18/21$2.805.24%
DLR Jul 16 $155 callin-the-money6/16/21$8.007/16/21$8.005.36%
AGNC Aug 20 $17 callout-of-money6/23/21$0.508/20/21$0.503.00%
OKE Aug 20 $57.50 callout-of-money6/23/21$3.508/20/21$3.506.67%
NEE Sep 17 $80 callin-the-money8/11/21$3.509/17/21$3.504.75%
BIP Oct 15 $55 callin-the-money9./01/2021$2.0010/15/21$2.003.95%
USB Nov 19 $60 callout-of-money9/24.2021$2.3011/19.2021$2.304.30%
OKE Nov 26 $65 callout-of-money10/20/21$2.2511/26/21$2.254.28%
KKR Dec 17 $75 callout-of-money10/26/21$3.5012/17/21$3.505.42%
QCOM Jan 21 $185 Callout-of-money11/30/21$9.651/21/22$9.657.17%
OLP Feb 18 $35 Callout-of-money11/19/21$1.502/18/22$1.504.94%
OKE Feb 18 $60 Callin-the-money1/5/22$2.752/18/22$2.755.24%
USB Feb 25 $61 callout-of-money1/13/22$2.502/25/22$2.504.68%
VLO Feb 25 $83 callin-the-money1/18/22$4.202/25/22$4.206.13%
EPD Apr 14th $24 callin-the-money3/2/22$1.254/14/22$1.255.69%
FSK Apr 14th $22.50 callin-the-money3/10/22$0.904/14/22$0.904.09%
XEL May 20th $70 callin-the-money3/30/22$3.005/20/22$3.004.76%
SBLK July 15th $134 callout-of-money6/1/22$1.607/15/22$1.604.80%
OKE Oct 21st $65 callout-of-money8/24/22$3.4010/21/22$3.405.22%
QCOM Sep 16th $145 callout-of-money7/20.2022$11.759/16/2211.758.73%

Brookfield Infrastructure Corporation (BIPC)

Yield: 3.6%

I don’t get it. Other defensive stocks have been strong. Brookfield is probably the very best in terms of inflation and recession fortitude. But the stock has been floundering. The reason is probably because BIPC is international, and the dollar has been strong. Outside of that BIPC looks like the perfect stock to hold into 2023 as recession looms. It’s also looking to the future and focusing on megatrends of digitalization, decarbonization, and deglobalization. It’s invested heavily in data centers and cell towers, natural gas midstream assets, and crucial onshore manufacturing in computer chips. (This security generates a K-1 form at tax time). BUY


Brookfield Infrastructure Corporation (BIPC)
Next ex-div date: February 28, 2023. Est.

Global Ship Lease, Inc. (GSL)

Yield: 8.8%

Shipping is a great place to be longer term. The supply/demand dynamic for ships favors a secular bull market. Few places offer such marvelous income with terrific growth as well. It’s the near term that’s the problem. A global economic slowdown and continuing China woes have taken the wind out of the sales in the here and now. But GSL should prove worth enduring. The price should reignite sometime next year and in the meantime, you get paid handsomely to wait with a nearly 9% yield. HOLD


Global Ship Lease, inc. (GSL)
Next ex-div date: February 21, 2023, est.

Intel Corp. (INTC)

Yield: 5.6%

INTC has been an absolute dog. Apparently, the dunking in technology isn’t over yet. The sector has been the second worst performing on the market over the past month as the market turned south again. Things may get worse in the near term, but the situation will surely improve for technology at some point. Hopefully the big turnaround isn’t that far off. Intel’s individual prospects should significantly improve as growth investments come to fruition. It’s been a painful slog. But it could prove to be worth the pain over time. BUY


Intel Corporation (INTC)
Next ex-div date: February 4, 2023, est.


Yield: 5.7%

OKE has certainly leveled off since the middle of November after soaring off the September lows. But leveling off isn’t the worst thing in this awful market. As it is, OKE gas returned 18% YTD after a terrific performance last year. A big fat dividend with slow appreciation is the gold standard these days, and OKE has the right stuff. Revenues are both recession and inflation resistant. The high dividend is safe. And the stock is still reasonably valued. The short-term behavior of the stock is anyone’s guess. But OKE should deliver positive results over the course of 2023. BUY


ONEOK, inc. (OKE)
Next ex-div date: January 31, 2023, est.

Realty Income Corp. (O)

Yield: 4.6%

Yeah, the rally in O has sputtered badly over the past six weeks. The legendary income REIT seems to be on its own schedule. It has been a sideways trajectory. But that’s good. O is one of the few stocks not to move lower in this latest market selloff. The recent performance may be a glimpse ahead of the market ugliness that should ensue in early 2023. With O, you should get resilient performance with a high monthly dividend. That should make O a superstar in the months ahead. BUY


Realty Income Corp. (O)
Next ex-div date: December 30, 2022

Star Bulk Carriers Corp. (SBLK)

Yield: 31.9%

I know. SBLK has been a terrible stock in this bear market. But it does pay you that massive dividend. And things should vastly improve in the new year. Star Bulk owns ships that will be in huge demand going forward. Shipping stocks should be among the very first star performers when the market turns next year. At the end of the day, the great long-term performance and the stratospheric dividend should make owning SBLK well worth the short-term pain. It is likely still the early innings of multi-year positive cycle for shipping. And Star Bulk is one of the very best. HOLD


Star Bulk Carriers Corp. (SBLK)
Next ex-div date: February 28, 2023, est.

Qualcomm Corp. (QCOM)

Yield: 2.7%

After a terrible year, QCOM is enduring another selloff in the latest market downturn. I can’t say that things won’t get worse before they get better. But things will surely get better. This is a bargain basement price compared to where QCOM is likely to be priced a year from now. Technology stocks can turn around fast and make up for lost time as the environment changes, and it likely will in the new year. The market has been pricing in bad news all year. Before long, the market may start sniffing out a recovery. HOLD


Qualcomm Inc. (QCOM)
Next ex-div date: February 28, 2023, est.

Visa Inc. (V)

Yield: 0.9%

Okay, the performance hasn’t been that good. This is a cyclical financial stock, and we are in a bear market and looming recession. But V is still down only 5% YTD. This is how it is in the bad times. But the good times are coming. Visa is simply one of the very best companies to own. The business formula is so good that it should be illegal. I’ll bet V is a superstar of 2023. It should be well worth the wait, especially when the wait hasn’t been that bad at all. HOLD


Visa Inc. (V)
Next ex-div date: February 9, 2023, est.

The Williams Companies, Inc. (WMB)

Yield: 5.1%

WMB was built for the current environment. It pays a big income and thrives amid inflation and recession. That’s why the stock has returned more than 34% YTD while the S&P 500 is down 20%. And its relative superiority has not yet run its course. Prospects for next year remain excellent and the performance of WMB should be strong. The company posted strong earnings because of resilient natural gas demand, something that is likely to endure through the recession based on shortages overseas. We’ll see which way it breaks next. But it should be solid through the new year. BUY


The Williams Companies, Inc. (WMB)
Next ex-div date: February 8, 2023, est.

Xcel Energy Inc. (XEL)

Yield: 2.8%

This clean energy utility stock is delivering as advertised. It’s doing just fine in a terrible market. Since more of the same is likely ahead in the next several months, XEL is an ideal stock to own right now. It has both safety, from a very defensive utility business, and growth, from the clean energy side. Although the relative performance in a bear market is special, XEL is no slouch in good markets either. It’s a great stock to own anytime. But heading towards a likely recession it’s one of the very best. BUY


Excel Energy, Inc. (XEL)
Next ex-div date: March 14, 2023, est.

Active Covered Call Trades

Sell OKE January 20 $65 calls at $3.70 or better
This is a great stock, and the price has moved above the strike price already in a crummy market. I like the prospects for OKE going forward and I hope the stock doesn’t get called. But I don’t trust this market and it makes sense to take income when we can get it. It could fall back again if the market gets ugly. But even if the stock rises and gets called, we still have WMB.

Sell XEL January 20 $65 calls at $5.00 or better
This stock has leveled off a bit lately. But that’s because the market has been down. The stock should continue to at least go sideways over the next month unless the market gets in trouble, which is a distinct possibility. These in-the-money calls were sold despite a good prognosis for XEL in 2023 because I didn’t trust this market in the near term. But regardless of what happens, we locked in great income in a tough market.

Income Calendar

Ex-Dividend Dates are in RED and italics. Dividend Payments Dates are in GREEN. Confirmed dates are in bold, all other dates are estimated. See the Guide to Cabot Income Advisor for an explanation of how dates are estimated.

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The next Cabot Income Advisor issue will be published on January 24, 2023.

Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.