Please ensure Javascript is enabled for purposes of website accessibility
Income Advisor
Conservative investing. Double-digit income.

January 20, 2021

The positions remaining in the portfolio will benefit if the market continues to move higher.

Stocks Keep Moving Higher, for Now
It’s been an active week in the portfolio.

In last week’s update, AGNC Investment Corp. (AGNC) and Brookfield Infrastructure Partners (BIP) were purchased. Outstanding calls in Altria (MO), Enterprise Product Partners (EPD) and U.S. Bancorp (USB) expired on Friday as well. All three stocks closed above the strike price and were called.

That is to be expected when the market rises sharply, especially when the rally is led by previously downtrodden stocks like those that were called. Strong returns were generated on all positions in a short amount of time. And the newsletter is well-ahead of schedule to earn a double-digit annualized income return, close to 20%.

Of course, such returns are easier to generate in a bull market. But the relative return of this strategy improves in flat or down markets.

You may have an issue with your stock being called. In several cases you could say that you would have gotten a better total return just holding the stock and selling it at a higher profit. That may be true theoretically. But that total return is unrealized until you sell the stock. That gain can evaporate quickly when the market turns lower. The returns on these stocks are money in the bank.

While I remain positive on the market for the current year, it won’t go straight up. At some point the market will pull back. It always does, even in a raging bull market. In many cases we not only locked in a strong return but there will be an opportunity to buy the stock again at a cheaper price in the future.

The positions remaining in the portfolio will benefit if the market continues to move higher as well. All the remaining positions, except the two added just last week, have appreciated in price since being added to the portfolio. I will look to write covered calls on those positions when the pricing becomes most advantageous. Please keep a lookout for “Special Alerts” in your Email.

Stock Portfolio Recap

AGNC Investment Corp. (AGNC) Yield 9.2%
This mortgage real estate investment trust (mREIT) will likely continue its very slow trend higher while paying a near double-digit annual yield in monthly payouts. AGNC would be a deal if you just knew it would be at the exact same price in a year. After all, if a bank was offering a 9% CD the line would circle the planet. An improving economy and higher trending longer term interest rates should drive the price slowly higher as well. BUY

Altria (MO) – Called
The call options expired last Friday with a strike price of 40 per share, and the stock closed the day at 41.20. The shares were likely called. That’s fine. MO is a stock that is still in a long-term downtrend. The stock price fell over 17% for the year 2020. But we took that stock and milked it for a 15% income, between the two calls written and the three dividends in a little over 7 months. With slight appreciation, we got a total return of 16.1%.

B&G Foods, Inc. (BGS) Yield 6.7%
This packaged food company is a good stock to own because it is very reasonably valued in an expensive market, it pays a high and safe yield, and it should likely post solid earnings growth for years to come as more people continue to eat at home. It just doesn’t have good near-term momentum as it has been moving sideways since the last summer. But we are milking it for a high income with the covered call and the dividends while it languishes. BUY

Brookfield Infrastructure Partners (BIP) Yield 3.7%
In terms of expected market performance, BIP is a similar story to AGNC except with less yield and more appreciation potential. The market environment changes but BIP keeps right on tickin’. Reliable income and a solid yield never go out of style for very long. Plus, BIP has the fact that infrastructure is becoming a subsector more in vogue and it should be well greeted by investors in the post pandemic environment. The company should also get a bump in earnings for good measure as new acquisitions start to feed the bottom line and cyclical assets rebound as the economic recovery gains traction. BUY

Chevron Corp. (CVX) Yield 5.6%
I believe energy stocks will continue to trend higher in the months ahead. And CVX is the best of the best. However, if the continuance of the energy rally comes to fruition, CVX will certainly not be the best performer in the sector, or close to it. But it has less potential downside than most, and it will surely participate in the rally. CVX is solid and you can hold it with confidence if things get rocky in the near the term. BUY

Enterprise Product Partners (EPD) - Called
I’m kind of sorry to lose this one. Shares were called on Friday’s options expiration as the strike price was 20 per share and shares closed the day at 22.94. It is a great holding with a high and safe yield in a sector that should continue to trend higher over the course of the year. That said, EPD has been an underperformer for years and we got a 19.6% total return on the position in less than 7 months (between the dividends, the call and capital appreciation). We should benefit in CVX and VLO if energy trends higher as well.

U.S. Bancorp (USB) - Called
Shares of this high-quality bank were called on Friday as well, with a strike price of 45per share and a closing price of 48.40. The shares continued to propel higher in a market where post pandemic beneficiaries continue to soar. This position yielded a 5.4% income return in just a few months. And that 5.4% compliments the 8.6% return the same position generated earlier in the year.

Valero Energy (VLO) Yield 7.0%
After a huge run higher in November, the stock had a normal and healthy consolidation in December. But it has been moving higher once again and is approaching the recent high. This refiner has a good chance to be a big star in the months ahead. It is very highly levered to a more full recovery, which I believe is likely to unfold in the quarters ahead. Now, it appears to have near-term momentum as well. BUY

Existing Call Trades

Sell EPD Jan 15 $20 call at $0.80 – Expired and called

Sell USB Jan 15 $45 call at $2.00 – Expired and called

Sell MO Jan 15 $40 call at $1.90 – Expired and called

Sell BGS February 19 $27.50 call at $2.40 or higher
With a month to go before expiration, these calls are currently selling below the target 2.40 price at 2.20. The stock has been bouncing up and down in a sideways range since the summer. The strike price is near the middle of that range. We’ll see what happens but either way we’ll secure a double digit income.