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Income Advisor
Conservative investing. Double-digit income.

Cabot Income Advisor Issue: June 25, 2024

AI is the catalyst driving the technology sector, which is driving the market higher. Over the last month, the tech sector is up 10.42% while the S&P is up 2.95%. Seven of the 11 sectors are negative for the past month.

But technology stocks may be running out of gas. Without the heavy lifting from technology, it’s easy to see the overall market trending sideways or down, at least for a while.

Income is king in markets like this. The register still rings when the market stumbles. There’s also an opportunity right now. With the S&P and many stocks near their 52-week highs, it’s a good time to get high call premiums. Also, you can lock in strong total returns from these stocks if they are called.

Even the best bull markets have ups and downs. We can play the increased likelihood of a flat or down market by priming the income pump to pay us through the rough patch. In this issue, I target another covered call that will enhance the already exquisite income of a monthly dividend stock.

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Get Income While the Getting Is Good

It has been a very good market. It just hit a new all-time high last week. But the market will be hard pressed to continue this pace, especially considering the uncertainty brewing.

The S&P 500 is up 14.57% year-to-date, as of last Friday’s close. The index is also up over 32% from the low of last October and 52% from the bear market low in late 2022. It’s on about a 30% annual pace after returning 22% last year.

Why have stocks been so good? It’s simple, artificial intelligence.

AI is the catalyst driving the technology sector, which is driving the market higher. The tech sector is up 28.35% YTD. No other market sector is up double digits. Over the last month, the tech sector is up 10.42% while the S&P is up 2.95%. Seven of the 11 sectors are negative in the past month.

If you take technology out, the rest of the market has been rather lame. The biggest reason for the mostly lackluster performance in other sectors is interest rates. Rates are still near the highest levels in two decades. And rates are unlikely to go down to any significant degree unless the economy slows, which would also create problems for the market.

At the same time, technology stocks may be running out of gas. The tech-heavy Nasdaq index has been falling since last week. The AI surge from the last round of earnings is likely petering, as it usually does at this point in the cycle. Without the heavy lifting from technology, it’s easy to see the overall market trending sideways or down, at least for a while.

It’s also approaching the summer malaise followed by the often treacherous fall months of September and October. There is also a contentious presidential election and two wars going on. At the very least, the current 30% annual pace will be hard to maintain under the circumstances.

Income is king in markets like this. The register still rings when the market stumbles. There’s also an opportunity right now. With the S&P and many stocks near their 52-week highs, it’s a good time to get high call premiums. Also, you can lock in strong total returns from these stocks if they are called.

This newsletter has recently targeted covered calls on three stocks. Another one is targeted in this issue. Even the best bull markets have ups and downs. We can play the increased likelihood of a flat and down market by priming the income pump to pay us through the rough patch.

What to Do Now

While certain stocks have done well, some of the more defensive and interest rate-sensitive stock have been floundering. This is particularly true of the REITs in the portfolio including Alexandria Real Estate Equities (ARE), American Tower (AMT), and Realty income (O).

In fact, the real estate sector is the only one of the 11 S&P 500 sectors that is in negative territory YTD. After a bad couple of years amid rising inflation and interest rates, these stocks have been bouncing up and down along with the latest interest rate narrative. But the stocks are cheap and high-yielding. And sectors don’t stay out of favor forever.

If the technology sector does peter out for a while, investors will look for alternatives. Income is a great play in flatter markets and these REITs are cheap and ripe for plucking. Interest rates have likely peaked for this cycle. Utility stocks have already turned things around and are one of the better performing market sectors YTD.

Monthly Recap

May 29
Purchased ONEOK, Inc. (OKE) – $79.59
Sell BIPC Sep 20th $35 calls at $3.00 or better – Pending

June 5
Sold QCOM July 19th $200 calls at $12.00

June 11
NextEra Energy, Inc. (NEE) – Rating change “BUY” to “HOLD”
Sell NEE SEP 20th $77.50 calls at $4.40 or better
Realty Income Corp (O) – Rating change “BUY” to “HOLD”

June 25
Sell NEE SEP 20th $77.50 calls at $4.40 – Removed
Sell MAIN September 20th $49.40 calls at $2.00 or better

Featured Actions

TRADE ALERT- Sell MAIN September 20th $49.40 calls at $2.00 or better

Expiration date: September 20
Strike price: $49.40
Call price: $2.00

Main Street Capital Corp. (MAIN)

MAIN is a Business Development Company that has performed successfully over the long term. Not only does it pay the current $0.24 per share every month, it also pays a supplemental dividend. The trailing yield is 8.4%. MAIN is currently trading near the top of its range in a market that could get challenging by the fall. A call premium makes a great addition to the income stream.

Here are the three scenarios.

1. The stock closes above the $49.40 strike price at expiration.
Call premium: $2.00
Dividends: $1.26
Appreciation: $3.00 ($49.40 strike price minus $46.40 purchase price)
Total: $6.26 (total return will be 13.5% in 6 months)

2. The stock price closes below but near our $49.40 strike price.
Call premium: $2.00
Dividends: $1.26
Total: $3.36 (total income of 7.24% in 6 months)

3. The stock price declines.
There will be $3.26 in income to offset the decline. Plus, the original purchase price was $3 per share below the strike price.

Portfolio Recap

Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Alexandria Real Estate Eq.ARE12/19/23$129.54$119.00$140.004.27%-6.31%
American Tower Corp.AMT1/23/24$202.26$195.74$220.003.31%-2.35%
Brookfield Infrstr. Cp.BIPC2/27/24$32.64$34.45$40.004.70%5.24%
Enterprise Product Ptnrs.EPD2/27/24$27.61$28.50$30.007.23%5.08%
FS KKR Capital Corp.FSK4/23/24$19.42$20.50$20.5013.66%5.82%
Main Street Capital Corp.MAIN3/26/24$46.40$49.00$50.008.45%6.64%
NextEra Energy, Inc.NEE4/25/23$77.50$79.50$65.002.57%6.02%
ONEOK, Inc.OKE5/29/24$79.59$81.00$84.004.89%1.77%
Qualcomm Inc. QCOM5/5/21$134.65$204.05$165.001.67%62.54%
Realty Income Corp.O6/27/23$60.19$52.80$62.005.81%-7.15%
Call Trades
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
BIPC Sep 20 $35 callBIPC240920P00035000Sell Pending$1.95$3.009.19%
QCOM July 19 $200 callQCOM240719C00200000Sell6/5/24$12.00$15.40$12.008.91%
MAIN Sep 20 $2 callMAIN240920C00049400Sell Pending$1.91$2.004.31%
NEE Sep 20 $77.50 callNEE240920C00077500Remove$2.00$4.405.68%
as of close on 06/21/2024
XTicker Symbol ActionEntry DateEntry PriceSale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/20$87.829/18/20$10015.08%
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$23.214/14/22$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%
ONEOK, Inc.OKECalled5/25/22$65.141/20/23$652.66%
Xcel Energy, Inc.XELCalled10/26/22$62.571/20/23$654.67%
Realty Income Corp. OCalled9/28/22$60.372/17/23$635.41%
Medical Properties TrustMPWSold1/24/23$13.223/21/23$8-38.00%
Brookfield Infrastructure Cp.BIPCCalled11/9/22$42.437/21/23$458.72%
Star Bulk Carriers Corp.SBLKSold6/1/22$33.308/8/23$18-31.38%
Visa Inc.VCalled12/22/21$217.168/18/23$2359.16%
Global Ship Lease, Inc.GSLSold2/23/22$24.968/29/23$19-13.82%
ONEOK, Inc.OKECalled3/28/23$60.989/15/23$659.72%
Hess CorporationHESCalled6/6/23$132.2510/20/23$15517.87%
Tractor Supply CompanyTSCOSold9/26/23$203.0311/28/23$200-1.02%
Digital Realty TrustDLRCalled7/18/23$117.311/19/24$13517.16%
Intel CorporationINTCCalled7/27/22$40.181/19/24$439.76%
AbbVie Inc.ABBVCalled7/25/23$141.633/15/24$16015.11%
Marathon Petroleum Corp. MPCCalled10/24/23$149.453/28/24$16512.06%
The Williams Companies, Inc.WMBCalled8/24/22$35.585/17/24$357.14%
SecurityIn/out moneySell DateSell PriceExp. Date$ 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-money9/1/21$2.0010/15/21$2.003.95%
USB Nov 19 $60 callout-of-money9/24/21$2.3011/19/21$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%
OKE Jan 20th $65 callIn-the-money11/25/22$3.701/20/23$3.705.68%
XEL Jan 20th $65 callin-the-money11/25/22$5.001/20/23$5.007.99%
O Feb 17th $62.50 callin-the-money12/28/22$3.002/17/23$3.004.97%
QCOM Sep 16th $145 callout-of-money7/20/22$11.759/16/22$11.758.73%
V Mar 17th $220 callout-of-money1/24/23$12.003/17/23$12.005.51%
OKE May 19th $65 callout-of-money4/11/23$2.705/19/23$2.704.43%
V Jun 2 $230 callout-of-money4/21/23$10.506/2/23$10.504.82%
BIPC $45 July 21st callin-the-money5/23/23$3.257/21/23$3.257.66%
V $235 Aug 18th callin-the-money7/11/23$9.008/18/23$9.004.13%
GSL $20 Aug 18th callout-of-money7/11/23$1.258/18/23$1.255.00%
OKE $65 Sep 15 callin-the-money9/15/23$3.207/25/23$3.204.92%
INTC $35 Oct 20th callout-of-money9/8/23$3.7810/20/23$3.789.41%
HES $155 Oct 20th callin-the-money9/8/23$9.0010/20/23$9.006.81%
DLR $135 Jan 19th callin-the-money11/22/23$6.001/19/24$6.005.11%
INTC $42.50 Jan 19th callin-the-money11/29/23$3.501/19/24$3.508.71%
ABBV $160 Mar 15th callin-the-money1/10/24$7.003/15/24$7.004.94%
MPC $165 Mar 28th callin-the-money2/14/23$10.003/28/24$10.006.69%
QCOM $170 Apr 26th callout-of-money3/12/24$10.004/26/24$10.007.42%
WMB $35 May 17th callin-the-money3/12/24$2.005/17/24$2.005.62%

Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.5%

It’s been the road to Nowheresville for his life science specialty REIT. It looked like it might be going someplace in the first half of May, but it rolled over back near the YTD low. ARE has been a victim of the interest rate outlook. Things have improved on that front lately and ARE has moved a little higher. Alexandria reported strong earnings and raised the dividend again this past quarter. ARE will likely bounce around somewhat at the mercy of the interest rate narrative and not significantly surge higher until rates muster a sustained move downward. BUY


Alexandria Real Estate Equities, Inc. (ARE)
Next ex-div date: June 28, 2024

American Tower Corporation (AMT)
Yield: 3.3%

AMT had a good May and is trading right near the May high after leveling out in June. The price remains right near the May high. That said, it’s been a disappointing year so far as AMT is down 10% YTD. As with ARE, better interest rate news should be good for this cell tower REIT. American Tower rallied strongly after the REIT beat estimates on both revenue and earnings with 9.8% adjusted funds from operations per share growth over last year’s quarter. The REIT also raised guidance for 2024. It’s a solid REIT with stronger growth than most of its peers but interest rates will be the biggest determinant of performance in the near term. BUY


American Tower Corporation (AMT)
Next ex-div date: September 14, 2024, est.

Brookfield Infrastructure Corp. (BIPC)
Yield: 4.8%

This infrastructure company that used to be a market superstar in years past has been going sideways since the end of last year. The operational performance has been sound. Brookfield reported strong earnings and the company rallied strongly off the early April dip. But it’s been stuck in the mud again. The company did raise the quarterly dividend by 6%. The targeted covered call price was not reached as the stock moved lower since the May issue but the price target remains and BIPC may move higher again. BUY


Brookfield Infrastructure Corporation (BIPC)
Next ex-div date: August 31, 2024, est.

Enterprise Product Partners L.P. (EPD)
Yield: 7.2%

This midstream energy partnership is still about a dollar per share below the April high. But EPD is still in an uptrend that began in late 2020. While the uptrend has been bouncy and slow, it has been unmistakable and EPD has been posting solid yearly returns while paying an enormous distribution yield that is very safe. The energy sector has been weaker because of falling oil prices but prices have spiked higher in June. We’ll see if it is just a bounce or more of a sustained move. Earnings again showed Enterprise is solid operationally. I expect EPD to continue to pay the massive distribution and trend higher at a snail’s pace. (This security generates a K-1 form at tax time.) BUY


Enterprise Product Partners L.P. (EPD)
Next ex-div date: July 31, 2024, est.

FS KKR Capital Corporation (FSK)
Yield: 14.4%

The massive-yielding BDC pulled back earlier this month after the quarterly payout went ex-dividend. When a yield is this high and this important to the stock, the ex-date has a noticeable impact. FSK has moved off the recent lows and may start to trend higher again and create a call writing opportunity. So far, FSK is delivering as advertised. It’s continued to pay the massive dividend and the price has appreciated since it was added to the portfolio. FS will pay a second-quarter regular dividend of $0.70 per share and supplemental dividend of $0.05, reflecting confidence in the BDC’s ability to cover the payout and support shareholders. BUY


FS KKR Capital Corp. (FSK)
Next ex-div date: September 14, 2024, est.

Main Street Capital Corporation (MAIN)
Yield: 5.9%

This Business Development Company pulled back somewhat after making a high in early May, but it has been trending higher again since late May. It’s still in an uptrend that began last fall and has been steady for weeks. MAIN paid the regular monthly dividend of $0.72 per share in the second quarter, marking a 6.7% increase year-over-year, as well as a $0.30 supplemental dividend. The safe and high yield pays dividends every single month with a strong possibility of supplemental dividends over the course of the year as well. The current yield is reflected above as 5.9% because I only include the regularly scheduled dividend. Including the supplemental dividends, the yield is 8.4%. BUY


Main Street Capital Corporation (MAIN)
Next ex-div date: July 8, 2024

NextEra Energy, Inc. (NEE)
Yield: 2.8%

After a huge run higher from March until the end of May, NEE is having a comeuppance in June. After a 40% run higher the stock has pulled back more than 8% so far this month. The story hasn’t changed. It’s just that the rally had to run out of gas at some point. The quite-long-in-the-tooth rally is the main reason NEE was downgraded to a HOLD last week. But NextEra posted solid earnings in the recent quarter, which also added to the stock’s revitalization. NEE had been a superstar performer before inflation and rising interest rates. I expect solid performance going forward over the longer term. HOLD


NextEra Energy, Inc. (NEE)
Next ex-div date: September 3, 2024, est.

Yield: 5.0%

This is an amazing midstream energy company. Earnings are rock solid with inflation protection and recession resilience. The high yield should be at a premium in a likely more sideways market going forward. It is a more volatile stock than the other midstream companies that have been in the portfolio. That has been a good thing in a strong energy market. The higher volatility also provides for high call premiums, which have already benefited the OKE portfolio positions during earlier holding periods. The energy sector has been stronger, and the tech rally might be out of gas, creating more investor demand for stocks like OKE. BUY


Next ex-div date: July 31, 2024, est.

Qualcomm Corp. (QCOM)
Yield: 1.6%

As expected, QCOM is pulling back from the high. The price has fallen 10% is the last week. The stock had a big surge after the positive earnings report in April. These surges don’t last forever and somewhat of a pullback is typical. The technology sector may also be out of gas after a big run higher from the AI enthusiasm from this past earnings season. The stock may pull back more in the near term but being perfectly positioned ahead of the next phase of artificial intelligence, in mobile devices, is very compelling to investors. BUY


Qualcomm Inc. (QCOM)
Next ex-div date: August 30, 2024, est.

Realty Income Corp. (O)
Yield: 5.9%

Realty has historically been a legendary income stock that has raised the monthly payout every year since 1969. It had also been one of the best REITs to own. But that has not been the case for a while. Sure, it’s been a tough market for REITs these past couple of years and fortunes change. But O has continually underperformed its peers and the REIT index in good times and bad for a long time now. The stock is downgraded to HOLD but it will still be held in the portfolio because of the high monthly income it offers. HOLD


Realty Income Corporation (O)

Next ex-div date: July 1, 2024

Existing Call Trades

BIPC Sep 20th $35 calls at $3.00 – Sell pending

It’s been a while. I know. This call was targeted in last month’s issue and has not yet been reached. But the September expiration is a very long way away. The call premium is selling about a dollar below the target price. But the price could be reached with a strong week for BIPC. We will leave the targeted price for now. It doesn’t hurt to try for another week.

Sell QCOM July 19th $200 calls at $12.00 or better

It looks like the stock was running away until this past week. As of this Monday’s trading, QCOM is just 5 dollars above the strike price. Technology stocks appear to be losing steam and there is still almost a month to go before options expiration. We may still keep this one.

Sell NEE SEP 20th $77.50 calls at $4.40 – Removed

After a huge run higher, NEE is pulling back and is now well out of range for these calls. They were targeted about a week too late. But we will likely get a chance to sell another call on NEE in the future.

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 July 23, 2024.

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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.