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Income Advisor
Conservative investing. Double-digit income.

Cabot Income Advisor Issue: May 23, 2023

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Income and Defense at This Stage of the Game

This is a tough one. The overwhelming majority of the time the market goes up in the year following a down year. The S&P 500 is up over 9% YTD. That’s a better than 20% annual pace.

Of course, much of that YTD return has to do with the strong performance of the large technology stocks that comprise more than 25% of the index. Nevertheless, stocks have climbed a wall of worry and shown impressive resilience so far.

But there is a plethora of issues in the way of a further rally. Even if we get past this debt ceiling issue without consequence, there’s inflation and the Fed. The market seems to be pricing in Fed rate cuts before the end of the year. I disagree. Core inflation is still high and isn’t budging. It’s unlikely the Fed will lower rates unless there is a recession, which is another thing. Most economists are forecasting a recession later this year or early next year.

Stocks can take off before a recession ends when investors sense an economic bottom. But the market rarely performs well in a state of looming recession. It’s also true that the S&P has already rallied 20% from the October lows. A bear market rally should be about out of gas. And it’s difficult to see how stocks can soar into the next bull market until there is more clarity on these issues.

Anything is possible. Stocks could continue to surprise. But there is too strong a chance of another selloff ahead or more sideways choppiness at best. That’s why the portfolio is not being as aggressive as I would normally like.

It still makes sense at this point to only buy the defensive stocks that are below the targeted price as well as sell covered calls for income when a stock gets near the top of the recent range.

In this issue, I highlight a covered call in a solid defensive stock that has recently rallied near the high point of the recent range. It’s a terrific way to get a high level of current income at a time when the market isn’t giving much else.

What to Do Now

There are currently only two BUY-rated stocks in the portfolio, NextEra Energy (NEE) and Williams Companies (WMB). ONEOK Inc. (OKE) was reduced to a HOLD rating last week as we see how the market’s negative reaction to its purchase of Magellan Midstream Partners (MMP) shakes out. Brookfield Infrastructure Partners (BIPC) is also reduced to a HOLD this week as the stock moved above the targeted buy range.

The other stocks in the portfolio have either moved above the buy range as well or they are cyclical stocks that are worth holding as they have likely bottomed but are not upgraded to a BUY when there is a strong chance the market might be at a near-term high.

Calls on OKE expired Friday. The stock wasn’t called as the price fell after it announced the purchase of MMP. OKE has leveled off and there will likely be another opportunity to sell another call in the future. OKE had been in the portfolio and called twice. This portfolio has sold a total of five calls against OKE for a total income of $14.80, or 25% of the current price.

There will likely be opportunities to buy more stocks at cheaper prices ahead of the next bull market before the end of the year. But right now, income and defense are still king.

Monthly Recap

April 25th
Purchased NextEra Energy (NEE) - $77.82

May 16th
ONEOK Inc. (OKE) – Rating change “BUY” to “HOLD”

May 19th
OKE May 19th $65 calls at $2.70 – Expired

May 23rd
Sell BIPC July 21st $45 calls at $3.25 or better
Brookfield Infrastructure Corporation (BIPC) – Rating change “BUY” to “HOLD”

Featured Action: Sell BIPC July 21st $45 calls at $3.25 or better

Expiration date: July 21st
Strike price: $45
Call price: $3.25

Brookfield Infrastructure Corporation (BIPC)

Brookfield Infrastructure is one of the very best defensive stocks on the market. The company focuses on high-quality, long-life properties that generate stable cash flows, have low maintenance expenses and are virtual monopolies with high barriers to entry.

Earnings were strong with 12.5% earnings per share growth in a quarter when the average company has shrinking earnings. It’s a solid recession stock and can also hold up amidst inflation. But this is a highly uncertain market. BIPC has rallied about 12% this month alone and is at the high end of the recent range. It presents a great opportunity to get a high income.

Here are the three scenarios.

1. The stock closes above the $45 strike price at expiration.
Call premium: $3.25
Dividends: $1.12
Appreciation: $2.57 ($45 strike price minus $42.43 purchase price)
Total: $6.94 (total return will be 16.4% in less than 9 months)

2. The stock price closes below but near our $45 strike price.
Call premium: $3.25
Dividend: $1.12
Total: $4.37 (total income of 10.3% in less than 9 months)

3. The stock price declines.
There will be $4.37 in income to offset the decline. Plus, the original purchase price was more than $2 below the strike price.

Portfolio Recap


Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Brookfield Infrastructure Cp.BIPC11/9/22$42.43$46.85$46.003.26%12.26%
Global Ship Lease, Inc.GSL2/23/22$24.96$19.06NA7.87%-17.40%
Intel CorporationINTC7/27/22$40.18$29.93NA1.68%-22.50%
NextEra Energy, Inc.NEE4/25/23$77.50$74.78$85.002.49%-4.29%
ONEOK Inc.OKE3/28/23$60.98$58.52NA6.53%-2.12%
Qualcomm Inc. QCOM5/5/21$134.65$105.86NA3.02%-18.23%
Star Buld Carriers Corp.SBLK6/1/22$33.30$18.90NA20.08%-30.35%
The Williams Companies WMB8/24/22$35.58$29.24$38.006.11%-14.34%
Visa Inc.V12/22/21$217.96$233.31NA0.77%8.29%
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
V $230 June 2nd callV 230602C00230000Sell 4/21/23$10.50$5.27$10.504.82%
BIPC $45 July 21st callBIPC230721C00045000Sell pending$3.27$3.257.66%
as of close on 5/19/2023
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%
ONEOK, Inc.OKECalled5/25/22$65.141/20/23$652.66%
Xcel Energy, Inc.XELCalled10/26/22$62.571/20//2023$654.67%
Realty Income Corp. OCalled9/28/22$60.372/17/23$635.41%
Medical Properties TrustMPWSold1/24/23$13.223/21/23$8-38.00%
SecurityIn/out moneySell DateSell PriceExp. Date$ 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%
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-money7/20.2022$11.759/16/2211.758.73%
V Mar 17th $220 callout-of-money1/24/23$12.003/17/203$12.005.51%
OKE May 19th $65 callout-of-money4/11/23$2.705/19/23$2.704.43%

Rating change – “BUY” to “HOLD”
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.3%
The infrastructure company is up over 12% this month while the market has been flat over the same period. The stock probably got new life after a sluggish period because Brookfield reported a solid earnings quarter with funds from operations (FFOs) per share growth of 12.5% over last year’s quarter. The company benefited from recent expansions and acquisitions but also showed solid organic growth. Brookfield is a solid holding amid inflation and/or recession but it has been reduced to a HOLD rating because it moved above the targeted price in an uncertain market. HOLD


Brookfield Infrastructure Corporation (BIPC)
Next ex-div date: May 30, 2023

Global Ship Lease, Inc. (GSL)
Yield: 7.9%
The container shipping company is getting a bump from another good earnings report last week. Global grew net revenue 3.7% and normalized earnings per share by 14.6% while continuing to expand its fleet of ships. The longer-term supply/demand dynamic is excellent and bodes well for the future. Shipping rates have also recovered this year. But the Chinese recovery isn’t materializing, and rates have flattened since the early part of the year. Rates have been stable, but the expected bump from increased Chinese traffic isn’t there, at least so far. HOLD


Global Ship Lease, inc. (GSL)
Next ex-div date: May 23, 2023

Intel Corp, (INTC)
Yield: 1.7%
Intel posted two quarters of negative earnings and guided for more of the same for the rest of the year. The company also slashed the dividend by 80% to save cash for its ambitious turnaround program. Yet, INTC is up 15% YTD, although the stock has pulled back and leveled off since the beginning of April. It looks like the stock has likely bottomed out already. Also, the early release of its CPU chip for data centers indicated that production problems have been solved and bodes well for an earlier-than-expected turnaround. HOLD


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

NextEra Energy, Inc. (NEE)
Yield: 2.5%
This combination regulated and clean energy utility stock has bounced around all over the past two years and is currently at the lower end of that range. It has been trending higher since the beginning of March as the risk of recession has grown and defensive stocks have outperformed. But NEE is still more than 15% below the recent high. This company is targeting earnings per share growth of 6% to 8% annually through 2026 and 10% per year dividend growth through at least 2024. NEE is also well positioned as a defensive stock with growth in a highly uncertain market. BUY


NextEra Energy, Inc. (NEE)
Next ex-div date: May 27, 2023, est.

Yield: 6.5%
The stock has bounced since being down sharply last week after the market hated its announced acquisition of Magellan Midstream Partners (MMP). The deal will turn ONEOK from a natural gas operator to a diversified midstream company that services oil and refined products as well. The market doesn’t seem to like it because the benefits are primarily longer-term, and Wall Street doesn’t like that. It involves the assumption of Magellan’s $5 billion in debt and $8.8 billion in new equity. That could hurt performance in the near term. We’ll see how things play out. Hopefully, it rebounds somewhat. The portfolio is holding for now. HOLD


Next ex-div date: July 28, 2023, est.

Star Bulk Carriers Corp. (SBLK)
Yield: 20.1%
The dry bulk shipping company had rallied earlier this year as shipping rates recovered somewhat. But the stock has pulled back to about even YTD as the Chinese recovery hasn’t delivered the desired effect on shipping rates. Unlike GLS, Star Bulk hasn’t massively increased its fleet size and year-over-year comparisons are tough as shipping rates have fallen. Although it is likely still the early innings of a multiyear positive cycle for shipping, the stock is near the recent lows and could be a SELL if there is further weakness in the stock. HOLD


Star Bulk Carriers Corp. (SBLK)
Next ex-div date: June 6, 2023

Qualcomm Corp. (QCOM)
Yield: 3.0%
The chipmaker posted mixed earnings results that the market hated earlier this month. The stock fell 6% on the day of the report. Because of slower smartphone sales as the global economy slows and the market gets more saturated, revenue declined 17% and earnings fell 33% in the quarter. That wasn’t a surprise and Qualcomm beat expectations. But it was pessimistic about the rest of the year and indicated the handset chip market may not have bottomed out.

That’s a problem because handset chips accounted for 77% of revenue. The stock is already down more than 40% from the high on expected lower smartphone sales. There probably isn’t much downside in the stock from here. The stock has bottomed and leveled off over the last few weeks. HOLD


Qualcomm Inc. (QCOM)
Next ex-div date: May 31, 2023

Visa Inc. (V)
Yield: 0.8%
I like the way V has been hanging so tough near the top of the recent range despite a nowhere market. The payments processing company grew earnings per share by 17% and revenues grew double digits versus last year’s quarter. That’s terrific when the average stock is posting lower earnings. Plus, it can really take off when the market recovers for good. The calls expire in a little more than two weeks. The price will largely depend on the market over that time. If there is weakness it will likely close below the 230 per share strike price. HOLD


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

The Williams Companies, Inc. (WMB)
Yield: 6.1%
The midstream energy company once again delivered on earnings and beat expectations for the fourth straight quarter. Earnings per share grew a whopping 36% over last year’s quarter as natural gas volumes remained strong and growing. WMB has been a struggling stock this year because of natural gas prices, which have crashed. Although the company is not highly levered to energy prices, it is affected by turbulence in its industry. The market still isn’t showing this company much love even though earnings are solid and the company just raised the dividend. BUY


The Williams Companies, Inc. (WMB)
Next ex-div date: June 9, 2023

Existing Call Trades

OKE May 19th $65 calls at $2.70 - Expired
Call premium: $2.70
Dividend: $0.955
Total: $3.66 (total income of 6.0% in less than 3 months)

The stock pulled back after the market’s negative reaction to the purchase of Magellan Midstream Partners (MMP). OKE closed well below the strike price and the calls expired without an exercise. We locked in a great income in a short time and will look to sell another call later. OKE had been in the portfolio and called twice. This portfolio has sold a total of five calls against OKE for a total income of $14.80.

V June 2nd $230 calls at $10.50

V is still hovering slightly above the strike price despite the choppy market with more than two weeks to go before the option expires. Much will depend on the market over the next couple of weeks. But either way, we will get a high income and solid total return.

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 June 27, 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.