An All-Weather Stock for Uncertain Times
The stock market is inherently unpredictable in the near term. That’s what makes it a market. But it has been especially hard to predict in recent years. And there might be more of the same going forward.
This year began with high inflation, a hawkish Fed, and a looming recession. Pundits overwhelmingly predicted more 2022-style bear market ugliness in the first half of this year. But the S&P 500 rallied 19.5% in the first seven months of the year.
The pandemic was another head-scratcher. Stocks initially crashed 30% as Covid took hold and strict lockdowns crashed the economy. But the market began to rally in March of 2020 and never really looked back, even though lockdowns would persist for another year plus.
This year has been surprisingly good so far, at least for the market indexes. Inflation is falling, the Fed is at least almost done hiking rates, and there is no recession in sight. A soft-landing has become the consensus view. It looks like we are getting through the steepest rate-hiking cycle in decades and into the next recovery and bull market without the usual economic pain first.
But the market rally has sputtered since the end of July. And stocks just hit the lowest mark since the recent top. A still-strong economy brings other problems. Last week, the Fed pledged to keep interest rates higher for longer than previously anticipated to keep inflation down amid economic growth. The benchmark 10-year Treasury rate is at the highest level in more than 16 years.
It appears that the strong economy will move rates higher and/or keep them high until the economy does roll over. Maybe the economic pain that the market has been dismissing is just a little further down the road. It seems unlikely that the indexes can add much to what had already been a 30% rally from the low of last October in such an environment. But as the last few years have illustrated, anything is possible.
There could be continued economic growth with rising interest rates and inflation or an economy bounding toward recession in the next couple of quarters, or anything in between. Sure, the market could find the means to rally with a desirable in-between scenario. But it is more likely that the market will just bounce around or move lower.
Amid such uncertainty, it makes sense to find stocks that can weather any scenario and are still fairly priced. Instead of placing a bet on what the Fed or inflation or the economy might or might not do, it makes sense to seek out an all-weather income generator.
In this issue, I highlight the stock of a company that operates in an incredible niche market that has provided earnings growth for 31 consecutive years and enabled the stock to consistently outperform the market in every kind of environment. The company is positioned for strong growth in the years ahead and is selling below its average valuations over the last five years despite the high-priced market.
What to Do Now
It’s hard to trust the market to rally to new highs over the next several months. That’s why the portfolio has used surges in individual stock positions to sell covered calls. Stocks near the 52-week high tend to generate high call premiums and assure a strong total return if the stock is called.
Recently, calls written on ONEOK (OKE), Brookfield Infrastructure Corporation (BIPC), and Visa (V) have resulted in those stocks being called. BIPC has since moved well below the call price and OKE and V are only slightly above the call price and have been trending lower. It makes sense in this uncertain environment to cash in and generate a high income and/or total return when the stocks are riding high.
The more cyclical stocks in the portfolio are largely dependent on the market and should benefit if stocks rally in the later part of the year. But the defensive stocks are better BUYs right now. Several positions are wallowing near 52-week lows simply because they are in sectors that have been out of favor recently. But the operational performance of the companies has been solid, and sector performance rotates.
Technology stocks were beaten down and unpopular at the beginning of the year. But technology has been the top-performing market sector this year, up well over 30% YTD. Nobody wanted conventional energy stocks two years ago. But that sector turned around and has been the top-performing sector since.
Utility stocks NextEra Energy (NEE) and Xcel Energy (XEL) have had a terrible year and are selling near multi-year lows. These stocks also have a long history of outperforming the market and are an excellent place to be if the economy does turn south.
Monthly Recap
August 29
Sold Global Ship Leasing (GSL) - $19.11
September 8
SOLD HES October 20 $155 calls at $9.00
SOLD INTC October 20 $35 calls at $3.76
September 15
OKE Sep 15 $65 calls at $3.20 – Expired
ONEOK Inc. stock (OKE) – Called
September 26
Sell DLR October 20 $130 at $6.00 – Remove
Buy Tractor Supply Company (TSCO)
Featured Action: Buy Tractor Supply Company (TSCO)
Tractor Supply is the largest operator of farm and ranch stores in the United States. Stores target recreational farmers and ranchers in primarily rural areas. The 85-year-old company operates 2,181 Tractor Supply stores in 49 states and 192 Petsense stores in 23 states. Tractor Supply is ranked 291 on the Fortune 500, has 52,000 employees, and over $14 billion in annual revenue.
It’s a significant company and a serious powerhouse in its area. The stores are huge with an average of 15,500 square feet of selling space and a similar amount of outside space. It does have some competition from big boys like PetSmart and Lowe’s (LOW), but it offers a uniqueness that makes it its own destination for rural customers. It also blows away smaller competitors with size and scale.
The store provides an environment and experience that its customers love. It also has the advantage of being partially insulated from e-commerce competition by offering many products that serve an immediate need or are expensive to ship. Plus, rural populations are growing as an increasing number of people flee cities after Covid and work from home. Here’s a sample of the things people buy at Tractor Supply:
Clothing
Power tools
Equine and pet supplies
Fencing
Tractor/trailer parts
Welding & pump services
Lawn and garden supplies
Sprinkler and irrigation parts.
In 2022, here’s how overall company revenue was distributed among the product categories: Livestock and Pet (50%); Hardware, Tools, and Truck (19%); and Seasonal Gift and Toy (21%). Tractor Supply has a diversified product offering that enables the store to thrive in just about any economy. That’s a big part of the reason the company has been able to generate 31 consecutive years of sales growth.
In this year’s second quarter, the company still grew net revenue 7.2% and earnings per share (EPS) by 8.5% versus last year’s quarter. Pet and livestock sales grew at twice the rate of its competitors, and it also got double-digit growth from its consumable, usable, and edible (CUE) product subcategory.
Tractor Supply reported earnings that were below expectations and reduced earnings guidance for the year, but the stock price rose 4.2% on the day of the report because the company raised its store growth target from 2,800 (currently 2,181) to 3,000 in the next decade. Investors are wisely looking past the temporarily weak consumer toward strong growth over the longer term.
Tractor anticipates adding 80 new stores in 2024 and an average of 90 stores per year thereafter. The company has a proven ability to profitably integrate new stores. It has grown the store base at a strong clip over the past couple of decades and its return on invested capital (ROIC) has soared from 10% in 2000 to 35% today.
The Dividend
TSCO currently pays an annual dividend of $4.12 per share, which translates to a 2.0% yield at the current price. The payout is well-supported with a 39% payout ratio where retained earnings provide expansion money, and the company is buying back shares. Tractor Supply has grown the payout by a whopping 28%-per-year average over the last five years.
The yield on cost is likely to rise significantly if the stock is held long term. But even more importantly, companies that grow their dividend tend to be among the best-performing stocks over time. Look at the annual percentage rate returns of TSCO versus the overall market in years past.
| 1-year | 3-year | 5-year | 10-year | 15-year | |
| TSCO | 12% | 54% | 144% | 260% | 2,030% |
| S&P 500 | 20% | 37% | 61% | 205% | 375% |
TSCO has outperformed the S&P 500 in every measurable period over the last 15 years except the past year. A $10,000 investment in the S&P 500 index five years ago would be worth $16,104 now (as of Sep. 25), but the same investment in TSCO would be worth $24,396 today. Of course, that’s no guarantee that it will outperform the market in a similar fashion in the future. But companies with consistently growing earnings tend to continue to outperform.
The variety of staple products offered generates sales in any economy, which is why the company has been able to grow sales for 31 consecutive years. TSCO has delivered market-beating returns in every type of market and can continue to perform if the market turns south.
Tractor Supply Company (TSCO)
Security type: Common stock
Sector: Consumer staples/discretionary
Price: $206
52-week range: $181.40 - $251.17
Yield: 2.0%
Profile: Tractor Supply is the largest operator of farm and ranch stores in the U.S. with 2,181 stores in 49 states and over $14 billion in annual revenues.
Positives
· The company has a stellar track record of earnings growth and stock performance over time.
· Earnings are resilient in any economy.
· Ambitious growth targets are well supported by a long track record of doing so profitably.
Risks
· Competition could increase in the company’s niche.
· A recession in the quarters ahead would likely hurt earnings and stock performance.
· The company has a relatively high level of debt and may not be able to deliver on expansions as in the past.
Tractor Supply Company (TSCO)
Next ex-div date: November 25, 2023, est.
Portfolio Recap
CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $107.68 | $130.00 | 2.96% | -15.54% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $34.18 | $35.00 | 1.44% | -11.17% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $33.62 | $38.00 | 5.35% | 1.26% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $67.70 | $85.00 | 2.79% | -11.85% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $150.12 | $140.00 | 1.16% | 14.19% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $51.56 | $62.00 | 5.90% | -13.22% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $123.34 | $125.00 | 3.94% | 6.05% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $152.74 | $150.00 | 3.86% | 7.84% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $59.73 | $65.00 | 3.50% | 3.89% |
| Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| INTC $35 Oct 20th call | INTC231020C00035000 | Sell | 9/8/23 | $3.78 | $0.92 | $3.00 | 9.41% |
| HES $155 Oct 20th call | HES231020C00155000 | Sell | 9/8/23 | $9.00 | $3.54 | $9.00 | 6.81% |
| as of close on 9/22/2023 | |||||||
| SOLD STOCKS | |||||||
| x | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14.2022 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20//2023 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 | -38.00% |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 | 8.72% |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 | -31.38% |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 | 9.16% |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 | -13.82% |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 | 9.72% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | $3.00 | 7/17/20 | $3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | $1.60 | 7/31/20 | $1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | $4.60 | 9/18/20 | $4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | $5.00 | 9/18/20 | $5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | $4.30 | 9/18/20 | $4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | $2.00 | 9/18/20 | $2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | $1.95 | 10/16/20 | $1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | $3.30 | 10/16/20 | $3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | $10.00 | 11/20/20 | $10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | $3.30 | 12/31/20 | $3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | $0.80 | 1/15/21 | $0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | $1.90 | 1/15/21 | $1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | $2.00 | 1/15/21 | $2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | $2.40 | 2/19/21 | $2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | $6.50 | 3/26/21 | $6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | $4.30 | 4/1/21 | $4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/203 | $12.00 | 5.51% | |
| OKE May 19th $65 call | out-of-money | 4/11/23 | $2.70 | 5/19/23 | $2.70 | 4.43% | |
| V Jun 2 $230 call | out-of-money | 4/21/23 | $10.50 | 6/2/23 | 10.5 | 4.82% | |
| BIPC $45 July 21st call | in-the-money | 5/23/23 | $3.25 | 7/21/23 | $3.25 | 7.66% | |
| V $235 Aug 18th call | in-the-money | 7/11/23 | $9.00 | 8/18/23 | $9.00 | 4.13% | |
| GSL $20 Aug 18th call | out-of-money | 7/11/23 | $1.25 | 8/18/23 | 1.25 | 5.00% | |
| OKE $65 Sep 15 call | in-the-money | 9/15/23 | $3.20 | 7/25/23 | 3.2 | 4.92% | |
AbbVie Inc. (ABBV)
Yield: 3.9%
So far, this cutting-edge biopharmaceutical company stock is getting through this challenging year in decent shape. It has returned -2.74% YTD. But it has been a lot better over the last two months when it has been up over 13%. It is struggling with shrinking revenues because of the loss of U.S. patent protection for its blockbuster Humira drug. But the company has the pipeline to overcome that in the not-too-distant future. The recent solid earnings report emboldens the notion that the revenue drop from the Humira patent expiration will be temporary and AbbVie will turn the corner sooner than expected. BUY
AbbVie Inc. (ABBV)
Next ex-div date: October 12, 2023
Digital Realty Trust (DLR)
Yield: 3.9%
It looks like the rally in this data center REIT has run out of gas in September. It’s down almost 7% for the month. However, it is still in a sharp uptrend that began in May when it improved its finances and secured the dividend by selling assets. The market may not have priced in the additional growth catalyst Digital is likely to get from significantly increasing artificial intelligence spending. We’ll see if the longer-range uptrend still has legs. But even if the stock pauses, the longer-term trajectory should be strong.
The calls that were targeted at the 130 per share strike price have been removed as DLR has fallen back to the 123 per share range. That’s okay. Sometimes we don’t get our price. But there should be more good call-writing opportunities in the future. BUY
Digital Realty Trust (DLR)
Next ex-div date: December 15, 2023, est.
Hess Corporation (HES)
Yield: 1.2%
The energy exploration and production company stock hit a new 52-week high two weeks ago but has since fallen about 10%. Oil prices stopped going higher and have been stuck right around the 90 per barrel of West Texas Intermediate (WTI). HES is highly levered to energy prices and there may be a sense among investors that prices may have peaked. But a pause in oil prices after a big spike is normal and the pause may be temporary as global supply is still strained amid strong demand. BUY
Hess Corporation (HES)
Next ex-div date: December 15, 2023, est.
Intel Corp, (INTC)
Yield: 1.4%
After hitting a new 52-week high the week before last, INTC abruptly pulled back 15% since. INTC typically pulls back after a spike, which is why we sold the calls when the stock was riding high. But there was also some bad news. At a company event management indicated that it will take longer to turn around revenue and earnings. The semiconductor subsector also had a rough week as many analysts expect the industry turnaround to take longer than previously expected. Plus, the Fed’s hawkish tone on interest rates also hurts the technology sector. Hopefully, the recent bleeding will stop this week. BUY
Intel Corporation (INTC)
Next ex-div date: November 4, 2023, est.
NextEra Energy, Inc. (NEE)
Yield: 2.8%
The weakness might be ending as NEE has made a move off the bottom. This stock is still wallowing near a multi-year low, but it has historically been a superstar performer. NEE moved above the low a couple of weeks ago and may be finally perking investor interest. The utility grew earnings 8.6% in the second quarter and 11% in the first half versus the same periods last year. It also has predictably solid earnings going forward because of a considerable project backlog. It’s a great stock that is just out of favor right now and selling near a multi-year low. BUY
NextEra Energy, Inc. (NEE)
Next ex-div date: November 30, 2023, est.
Realty Income Corp. (O)
Yield: 5.9%
This rock-solid, legendary income stock has not lived up to its reputation of late. O just hit a brand-new low which is the lowest price for the REIT in more than three years. Defensive stocks have been poor performers all year, but this is silly. O has retuned negative 16% YTD and -13% over the last three months. But operational performance has been sound as earnings were solid with a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties. This is now a very cheap and high-yielding stock with an excellent historical track record in a very uncertain market and economy. BUY
Realty Income Corporation (O)
Next ex-div date: September 30, 2023
Qualcomm Corp. (QCOM)
Yield: 3.0%
The chipmaker stock continues to stink up the place. It has returned 0% YTD while the technology sector is having a strong year. The sector is being driven by stocks with exposure to AI that are benefiting right now. It’s a little soon for Qualcomm. The company is highly dependent on smartphones. And sales have been falling as the 5G cycle comes to an end and the global economy is sputtering. The semiconductor sector sold off last week as an increasing number of analysts are anticipating a longer time for chip demand to rebound. That’s why QCOM fell 5% last week. But the stock can make up for lost time fast when things eventually turn around. BUY
Qualcomm Inc. (QCOM)
Next ex-div date: November 30, 2023, est.
The Williams Companies, Inc. (WMB)
Yield: 5.3%
After a sharp spike higher in the spring, the midstream energy company stock has leveled off and bounced around for the last several months. The stock didn’t benefit from the rally in the more commodity price-sensitive energy stocks over the last several months, as earnings rely on fee business rather than energy prices. I do like the way this company is set up going forward. Earnings should be highly resilient in any economy and the high yield is safe. Earnings were solid and recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. BUY
The Williams Companies, Inc. (WMB)
Next ex-div date: November 8, 2023, est.
Xcel Energy Inc. (XEL)
Yield: 3.5%
This clean energy utility hasn’t fared any better than NEE in a very tough market for utilities. XEL had been trending lower since the beginning of April and hit a new 52-week low at the beginning of the month. But XEL has moved sharply off the low in the past couple of weeks. This is one of the best utility stocks to own and the dark days may be turning around. XEL is still selling near the lowest valuations in years in an expensive market and ahead of a likely slowing economy. BUY
Xcel Energy Inc. (XEL)
Next ex-div date: December 15, 2023, est.
Existing Call Trades
Sell DLR October 20 $130 at $6.00 – Remove
The outstanding covered call trade for DLR October 20 $130 call at $6.00 is being removed. The stock pulled back in the last couple of weeks and that call price is no longer in range, and time value has expired as well. That’s OK. Holding out for a high call price worked for the calls on INTC and HES. There will likely be more opportunities to sell a call for DLR in the near future.
Sell HES October 20 $155 calls at $9.00 or better
These calls were sold at a good, high price when the stock was riding high near its recent peak. HES has pulled way back since the calls were sold as energy prices have been leveling off. The timing of these calls is looking excellent right now as the stock is now 5 per share below the strike price. Much will depend on the direction of oil prices over the next month to determine if these shares are called.
Sell INTC October 20 $35 calls at $3.50 or better
These shares had a big rally to a new 52-week high when the calls were sold. INTC tends to pull back after such rallies, and it made sense to lock in the high income in an uncertain market. The stock had a big pullback last week. Although we sold calls that were well in the money, INTC has pulled back to more than a dollar below the strike price.
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.
The next Cabot Income Advisor issue will be published on October 24, 2023.
