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Income Advisor
Conservative investing. Double-digit income.

April 14, 2021

This is an incredible market that just keeps creeping higher. The promise of a booming recovery with trillions in stimulus ahead continues to pull stocks to new all-time highs.

A Calm Market Inches Ever Higher
This is an incredible market that just keeps creeping higher. The promise of a booming recovery with trillions in stimulus ahead continues to pull stocks to new all-time highs.

Even normally pessimistic economists are calling for the strongest GDP growth in decades. And estimates are rising. Goldman Sachs is forecasting 8% GDP growth in 2021. That would be the highest since 1951. The average expectation for S&P 500 earnings growth in the first quarter is 25%.

That could be a problem. For the entire recovery so far, the economy and companies have blown away forecasts. Much-better-than-expected results fueled this bull market. But now expectations are catching up. It will be a lot harder for the market to exceed these lofty expectations and impress going forward.

Plus, recent performance can’t last. How much is left in the tank after a better than 80% rise in the S&P 500 since last year’s bottom? That said, with such a friendly market environment ahead, I won’t be surprised if stocks still move higher from here the rest of the year, albeit at a much slower pace than in the last year.

It seems like it should be a perfect environment for covered calls. Stock prices are lofty in a market looking increasingly toppy. But it’s been a weird rally of late. The market hasn’t had one day up or down as much as 1% over the past two weeks. Volatility is absurdly low. And volume has been low too.

Volatility drives call prices, and the current boring market is causing low premiums despite stocks going higher. Most of the current portfolio positions are trending higher. I don’t want to settle for a lame premium in exchange for a further rise in stock prices, which seems likely. But the stocks are moving higher and there will be call writing opportunities down the road.

Trades this month
March 17
Purchased Enterprise Product Partners stock (EPD) - $23.13

March 24
Purchased U.S. Bancorp stock (USB) - $53.47
Purchased KKR & Co. stock (KKR) - $47.98

March 26
VLO March 26 $60 call at $6.50 - Expired
Valero Energy Stock (VLO) – Called

April 1
CVX April 1 $95.50 call at $4.30 - Expired
Chevron Corporation stock (CVX) – Called

April 14
Sell AGNC June 18th $17 call at $0.50 or better

Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.4%
I like the timing for this stock very much. If the full economic recovery that the market is already factoring in comes to fruition, interest rates will most surely have to rise. Rising longer-term rates, while the Fed holds short-term rates steady, will steepen the yield curve and increase AGNC’s interest spreads and profits. The stock has already been consistently inching higher. HOLD

Brookfield Infrastructure Partners (BIP) Yield 3.8%
After underperforming the overall market for most of the recovery, BIP has performed a little better than the S&P 500 YTD. The stock has been a longer-term market outperformer and it should have good days in the weeks and months ahead. Earnings should be strong for the year as revenues from its transportation assets bounce back in recovery and new assets acquired on the cheap during the recession last year come on line. As well, the pending Inter Pipeline acquisition could be a needle-mover. BUY

Digital Realty Trust, Inc. (DLR) Yield 3.2
The solid growth, specialty data center REIT has been very out-of-favor. While the overall market has been on a bender, DLR has been languishing since last fall. Pandemic beneficiary stocks went out of style. Then defensive stocks got shunned during the cyclical rally. But the stock is now cheap in an increasingly expensive market. We saw how beneficial holding out-of-favor stocks can be with the rebound in cyclicals. This REIT will again gain favor with the market. BUY

Enterprise Product Partners (EPD) Yield 7.8%
On the one hand, EPD didn’t have nearly the rally in February and March that the rest of the energy sector did. Profits aren’t rebounding as much as many energy plays because they never went down that much in the recession. But business is certainly trending higher and so is the stock price. It’s still cheap, at well below pre-pandemic prices, and that monster yield is rock solid. The stock should certainly continue to trend higher and we’ll write profitable calls when the time is right. BUY

KKR & Co. (KKR) Yield 1.1%
This best-in-class alternative investment financial company is looking great. It seems to inch a little bit higher every day regardless of what the overall market does. It’s a great time for financial stocks ahead of a booming recovery and rising interest rates. Plus, KKR is tops in a the high growth area of alternative investments. It’s been a stellar performer in the past and there is every reason to believe it will continue to be so in a very accommodative environment. It’s already at a level where we could write a profitable call but I want to give this one some room to run. BUY

NextEra Energy Inc, (NEE) Yield 2.0%
It’s been a wild market. Cyclical stocks have been on fire. And technology was red hot for a long time. But somehow alternative energy has gone out-of-favor. That’s surprising, because the new administration is likely to put a high emphasis on it with tax breaks, incentives and other assorted goodies. This combination regulated and alternative energy is normally an up-trending juggernaut coming off a rare dip. But it’s already starting to get its mojo back and I expect more good things going forward. BUY

U.S. Bancorp (USB) Yield 2.9%
Yeah, this bank is looking strong. It’s still cheap ahead of a perfect storm of rising rates and a booming economy. We could absolutely pull the trigger here and get a fat call with the promise of a strong total return in a short time. But we’ve owned USB twice already in the portfolio. And, although we got great returns, I feel that we settled for too little each time. This time around I want more. The tape looks like it wants to keep giving us more. Let’s let it run further before writing a call this time. BUY

Trade Alert: Sell AGNC calls
Sell AGNC June 18th $17 call at $0.50 or better
Expiration date: June 18
Strike price: $17.00
Call price: $0.50

AGNC Investment Corporation (AGNC)
The best thing about this slow-moving specialty REIT is the income. It pays a whopping 8.4% yield and makes payments on a monthly basis. I don’t mind writing calls with an expiration two months away because AGNC pays you dividends in both those months.

If the stock closes over 17 per share on expiration day, you will have gotten (through call premium, dividends and capital appreciation) the equivalent of more than 21 months of dividends in a little over five months. If the stock closes below the strike price, you’ll get over nine months’ income in six months and can write more calls in the future.

Here are the three scenarios at expiration.

  1. The stock stays above our $17 strike price.
  • Call premium: $0.50
  • Dividends: $0.60 (5 monthly $0.12 dividends)
  • Appreciation: $1.48 ($17 strike price minus $15.52 purchase price)
  • Total: $2.58 (total return will be 16.6% in 5 months)
  1. The stock price closes below our $17 strike price.
  • Call premium: $0.50
  • Dividends: $0.60
  • Total: $1.10 (total income return of 7.1% in 5 months)
  1. The stock price declines.
  • The decline will be offset by the $1.10 in income, which translates to a little over nine months of income at the current $0.12 monthly payout in five months. Plus, there is some leeway to work with since the purchase price was $1.48 per share below the strike price.

Open RecommendationsTicker SymbolEntry DateEntry PriceRecent
Buy at or
Under Price
YieldTotal Return
AGNC Investment Corp.AGNC01/13/2115.5217.2217.008.39%13.11%
Brookfield InfrastructureBIP01/13/2150.6354.4053.003.75%8.50%
Digital Realty TrustDLR1/27/21149.17146.19155.003.23%-2.96%
NextEra Energy, inc.NEE2/24/2173.7679.0480.001.98%5.81%
Enterprise Product PartnersEPD3/17/2123.2122.9425.007.83%-0.56%
U.S. BancorpUSB3/24/2153.4756.6355.002.91%8.68%
KKR & Co.KKR3/24/2147.9852.0350.001.12%8.40%
Open RecommendationsTicker SymbolIntial
Entry DateEntry

Buy Under or
Sell Down To

Total Return
AGNC June 18 $17 callAGNC210618C0017000Sell4/13/210.500.500.503.20%
As of Close on 4/13/21
SecurityTicker SymbolActionEntry DateEntry
Sale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/2087.829/18/20100.0015.08%
U.S. BancorpUSBCalled7/22/2036.269/18/2038.003.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/2041.9210/16/2045.008.49%
Starbucks Corp.SBUXCalled8/26/2082.4110/16/2088.006.18%
Visa CorporationVCalled9/22/20200.5611/20/20200.000.00%
AbbVie Inc.ABBVCalled6/2/2091.0412/31/20100.0012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/2018.141/15/2120.0015.16%
Altria GroupMOCalled6/2/2039.661/15/2140.007.31%
U.S. BancorpUSBCalled11/25/2044.681/15/2145.001.66%
B&G Foods Inc,BGSCalled10/28/2026.792/19/2128.004.42%
Valero Energy Inc.VLOCalled8/26/2053.703/26/2160.0011.73%
Chevron Corp.CVXCalled12/23/2085.694/1/2196.0012.95%
SecurityIn/out moneySell DateSell PriceExp. Date$ ReturnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/203.007/17/203.003.40%
MO Jul 31 $42 callout-of-money6/17/201.607/31/201.604.03%
ABBV Sep 18 $100 callout-of-money7/15/204.609/18/204.605.05%
IIPR Sep 18 $100 callin-the-money7/22/205.009/18/205.005.69%
QCOM Sep 18 $95 callin-the-money6/24/204.309/18/204.304.82%
USB Sep 18 $37.50 callin-the-money7/22/202.009/18/202.005.52%
BIP Oct 16 $45 callin-the-money9/2/201.9510/16/201.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/203.3010/16/203.304.00%
V Nov 20 $200 callin-the-money9/22/2010.0011/20/2010.004.99%
ABBV Dec 31 $100 callin-the-money11/18/203.3012/31/203.303.62%
EPD Jan 15 $20 callin-the-money11/23/200.801/15/210.804.41%
MO Jan 15 $40 callin-the-money11/25/201.901/15/211.904.79%
USB Jan 15 $45 callin-the-money11/25/202.001/15/212.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/202.402/19/212.408.96%
VLO Mar 26 $60 callin-the-money2/10/216.503/26/216.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/21$4.304/1/21$4.305.02%