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Income Advisor
Conservative investing. Double-digit income.

June 1, 2022

Is the market improving? There are some reasons to believe it might be.
The broader S&P 500 index has come right up to the precipice of a bear market, down 20% or more from the high on a closing basis. It closed down 19% and actually crossed the 20% on an intraday basis. The market had done a similar thing twice in the last bull market but stayed above the line and went on to rally from there.

It Looks Better
Is the market improving? There are some reasons to believe it might be.

The broader S&P 500 index has come right up to the precipice of a bear market, down 20% or more from the high on a closing basis. It closed down 19% and actually crossed the 20% on an intraday basis. The market had done a similar thing twice in the last bull market but stayed above the line and went on to rally from there.

The S&P has been flirting with bear market territory for weeks. But last week, the S&P 500 broke a streak of seven consecutive lower weeks. The market may have already priced in expectations for the Fed and the risk of recession for now.

The Fed published minutes for the last meeting which reflected the Central Bank’s intention to raise the Fed Funds rate by 0.50% at each of the next two meetings. Investors were expecting that. There were also some better-than-expected inflation numbers for the first time in a long time.

Last week’s events triggered hope among investors that inflation may begin to abate, the Fed won’t have to be as aggressive as feared and we can avoid recession.

Given the move off the lows and the positive news last week, the market could be done trending lower for now. A big rally is still unlikely. But instead of one step forward two steps back, it could be a two step forward and one step back scenario in the weeks ahead. We’ll see.

We’re not out of the woods yet. And even if stock trend higher in the near term, the market may well revisit the lows later in the year. It’s not much hope. But it’s better than it has been for a couple of months.

Meanwhile, there is a rare opportunity to generate a high income right away. It’s an undervalued stock that pays a massive dividend. But it trades ex dividend on June 2, so you’ll have to hurry to capture the payout. It also presents a rare buy-write opportunity, where we can sell a profitable call right away.

Trades Past Month
May 20th
XEL May 20 $70 calls at $3.00 - Expired
Xcel Energy Inc. (XEL) stock - Called

May 25th
Purchased ONEOK, Inc. (OKE) stock – $65.14

June 1st
Buy Star Bulk Carriers Corp. (SBLK)
Sell SBLK July 15th $34 calls at $1.60 or better

Trade Alert
Buy Star Bulk Carriers Corp. (SBLK)
Star Bulk Carriers is an international shipping company based in Greece. The company owns 158 large ships and specializes in the seaborne transportation of dry bulk goods including iron ore, coal, grains, fertilizers, steel products and others. It is the largest U.S.-listed company of its kind.

Shipping companies and stocks had a miserable time last decade. During the 2000s the rise of China led to an unprecedented commodity boom. There weren’t enough ships to keep up with demand and shipping rates soared to the stratosphere. As a result, new ship orders exploded as more companies sought to benefit from the boom.

But by the time all those additional ships hit the market, the boom was over. China’s economy slowed and all the additional shipping capacity caused a collapse in shipping rates and shipping company profits. But things have turned around.

The shipping supply/demand dynamic is back in balance and demand for transporting dry bulk is strong. The Baltic Exchange Dry Index, which tracks dry bulk shipping rates, is currently around 2,500. The rate has soared to over 5,000 last fall amidst the port congestion and supply chain issues. It has come down but remains about double the level of the last ten years. And there are good reasons to believe those rates will remain elevated.

Industry dynamics and new environmental standards are scrapping older ships and new orders are barely keeping up. In fact, management at Star Bulk calls the current environment the best supply/demand dynamic in decades. The new ship orderbook is at 25-year lows and fleet growth is expected to decline significantly through 2023. Meanwhile, demand for dry bulk is expected to remain strong and growing.

There are also things to like about Star Bulk in particular. The biggest thing is that the company has the lowest cost structure of any of its peers. It’s been in business a long time, has size efficiencies, and the company got lean and mean last decade. It’s also well above its peers in environmental compliance with the average ship only ten years old and 94% of the fleet fitted with scrubbers, devices that clean emissions.

Profits are soaring with the high demand and higher rates. Revenue has more than doubled from a year ago and earnings growth is through the stratosphere. The stock has returned over 50% YTD and about 90% over the last year. But it’s still cheap. SBLK sells at a microscopic price/earning ratio of just four times earnings. Although SBLK is still near the 52-week high, investors had not really bought into it yet. There’s trepidation about global growth and a left-over sour attitude about stocks in the industry after last decade.

A Great Income Generator
The dividend is massive. The next dividend, which trades ex dividend on June 2nd, is $1.65 per share. With a current share price about 33 per share, it translates to a mind-blowing 20% yield. The company has a dividend policy where it pays out cash flow in excess of a minimum level per ship. As profits soar, so does the dividend.

It’s a great stock with strong fundamentals that trades at a dirt-cheap valuation that has been neglected by the down market of late. It also has terrific call premiums.

Sell SBLK July 15th $34 calls at $1.60 or better
Expiration date: July 15th
Strike price: $34
Call price: $1.60

Star Bulk Carriers Corp. (SBLK)
This is a buy-write strategy where the stock is purchased, and a call is sold simultaneously. It offers a unique opportunity for a sizable income right now. Let’s seize the opportunity while it still exists in this crazy market. We can lock in a great income and possibly an even higher total return on an undervalued stock.

Here are the three scenarios.

1.) The stock closes above the $34 strike price but near it at expiration
Call premium: $1.60
Dividends: $1.65
Appreciation: $1.00 ($34.00 strike price minus $33.00 current price)
Total: $4.25 (total return will be 12.9% in 6 weeks)

2.) The stock price closes below but near our $34 strike price.
Call premium: $1.60
Dividend: $1.65
Total: $3.25 (total income of 9.8% in 6 weeks)

3.) The stock price declines.
There will be $3.25 in income to offset the decline.
Stock Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield: 6.7%
Profits will rise because Global already locked in much higher rates for long-term contracts than have existed for many years and greatly expanded their fleet. Also, container shipping demand and rates should stay buoyant even as the global economy slows. It’s been knocked around in this market as global growth fears take everything international down. But the stock has risen every time fears wane for the last several years. It could have more bad days if the index plunges into bear market territory, but it should get moving higher again when the market stabilizes. BUY

Innovative Industrial Properties, Inc. (IIPR)
Yield: 5.4%
The selling of IIPR has been overdone in this market. Growth companies and stocks that were superstars of last year have been in the crosshairs. But IIPR is down 50% YTD while its first-quarter earnings increased 34% and the company forecast 37% growth for the full year.

True, there has been some speculation about the financial health of its tenants. But this stock plunge has already more than accounted for that risk. Innovative also grew the last dividend 17% and it has grown 63% over the past three years with a still-low payout ratio for a REIT. It could fall further in the near term, but the stock can move higher fast. It should trade at a much higher price later this year. BUY

Yield: 5.6%
This newest portfolio addition moved higher since being added to the portfolio in the up market last week. The stock returned 68% in 2021 but has been a relative underperformer this year. But it is still reasonably valued with a remarkably steady midstream natural gas and natural gas liquids (NGLs) business. It also has inflation adjustments built into it contracts and is minimally exposed to commodity price swings. It’s a great way to get a high dividend yield with a stock price that should rise over the rest of the year. BUY

One Liberty Properties, Inc. (OLP)
Yield: 6.6%
REITs have been in the crosshairs of the recent market tumult. The real estate sector is the second-worst performing of the 11 S&P 500 sectors over the last month and one of the worst YTD. Rising interest rates threaten the attractiveness of the yields and raise the cost of debt while many REITs have a sizable debt load. But REITs are also a good place to be during inflation. And several REITs, including OLP, are very capable of thriving despite higher rates. The pendulum should swing back and take this exceptional REIT with it. BUY

Qualcomm Corp. (QCOM)
Yield: 2.2%
It’s been an awful market for technology stocks this year and QCOM has been hammered. But revenues and earnings continue to grow at a fever clip and will likely continue to do so for the rest of the year at least. Most of the reason for the decline is that fact that QCOM is just in with the wrong crowd right now. There is also some trepidation of falling smartphone sales in the event of a recession or significant slowdown.

But the company continues to deliver despite supply disruptions and other concerns and sells at a cheap valuation considering the growth rate. The good should outweigh the bad, especially considering the stock already got the stuffing kicked out of it. Certain tech stocks have been way oversold, and QCOM is one of them. These things get straightened out over time. HOLD

Visa Inc. (V)
Yield: 0.7%
V has been knocked around because of economic growth concerns. It has spent much of this year under the 200 per share level, although it has recovered well above that range recently. But the company itself is killing it. The tremendous earnings boost it gets globally from the removal of covid restrictions easily outweighs slower global growth or geopolitical uncertainty. Visa’s earnings blew away expectations with YOY revenue growth of 25% and 30% earnings growth. This stock is poised to move higher if the market selling pressure continues to abate. HOLD

Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Qualcomm Inc.QCOM5/5/21$134.65$139.76$140.002.15%5.64%
One Liberty PropertiesOLP7/28/21$30.37$27.48$33.006.55%-5.59%
Visa Inc.V12/22/21$217.96$212.88$225.000.70%-1.98%
Global Ship Lease, Inc.GSL2/23/22$24.96$22.26$28.006.71%-9.34%
Innovative Industrial Props.IIPR3/23/22$196.31$133.09$210.005.38%-31.63%
ONEOK, Inc.OKE5/25/22$65.14$67.05$67.005.58%2.93%
Star Buld Carriers Corp.SBLK6/1/22$33.00$35.0020.00%
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
SBLK July 15th $34 callsblk220715C00034000Sell$1.60$1.60
As of close on 5/27/2022
SecurityTicker Symbol ActionEntry DateEntry PriceSale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/20$87.829/18/20$100.0015.08%
U.S. BancorpUSBCalled7/22/20$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 CorporationVCalled9/22/20$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 GroupMOCalled6/2/20$39.661/15/21$407.31%
U.S. BancorpUSBCalled11/25/20$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 PtnrsEPDCalled3/17/21$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$7012.66%
SecurityIn/out moneySell DateSell PriceExp. Date$ 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%