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Cabot Money Club

Cabot Stock of the Month Issue: May 12, 2022

As Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader always says, “you shouldn’t fight the tape.” The markets are battling it out these days, trying to find a bottom. The constant news cycle of Russia-Ukraine, rising rates (up 0.5% last week) and increasing inflation are causing a severe case of market indigestion and volatility.

What’s an investor to do? As I’ve been saying for the past 6 or so months, judicious investing is the key. While most sectors (except Energy and Utilities) and the majority of equities, are down for 2022, there are still pockets of ideas worth investigating, including some defensive moves.

With that being said, I think investors should be keeping some cash on the sidelines, as when this market shows signs of a long-term turn, there will be plentiful bargains to be had.

Cabot Stock of the Month Issue: May 12, 2022

Market Overview
As Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader always says, “you shouldn’t fight the tape.” The markets are battling it out these days, trying to find a bottom. The constant news cycle of Russia-Ukraine, rising rates (up 0.5% last week) and increasing inflation are causing a severe case of market indigestion and volatility.

What’s an investor to do? As I’ve been saying for the past 6 or so months, judicious investing is the key. While most sectors (except Energy and Utilities) and the majority of equities, are down for 2022, there are still pockets of ideas worth investigating, including some defensive moves.

With that being said, I think investors should be keeping some cash on the sidelines, as when this market shows signs of a long-term turn, there will be plentiful bargains to be had.

All in all, the economy is continuing to do ok. Housing—while still battling inflationary prices—is still going strong. Employment remains stable, at a 3.6% unemployment rate. Consumer spending is still positive, and so is consumer confidence.

And earnings are holding up. According to FactSet, with 87% of S&P 500 companies reporting actual results, 79% have logged a positive EPS surprise and 74% of S&P 500 companies have reported a positive revenue surprise. And the blended earnings growth rate for the S&P 500—although declining somewhat from recent quarters—remains near double digits, at 9.1%.

Nevertheless, it’s time to exercise some caution, and that’s why I’m recommending a dividend-paying ETF for you this month. With this ETF, you’ll invest in companies that have a history of paying solid dividends, which can offer a lift to your portfolio during challenging markets such as this one.




Featured Recommendation
Invesco Dow Jones Industrial Average Dividend ETF (DJD): A Conservative Value Play

This month, with the markets rocking and rolling, I’m looking to add a conservative dividend-paying pick to our portfolio. This idea came from Kate Stalter, Chief Analyst of Cabot ETF Strategist.

The ETF is Invesco Dow Jones Industrial Average Dividend ETF (DJD). DJD follows an index which includes securities listed on the Dow Jones Industrial Average (DJIA) that pay dividends. The index is comprised of securities that have paid consistent dividends over the past four quarters.

The fund invests at least 90% of its total assets in the securities that comprise the underlying index.

DJD departs from the DJIA in that its securities are weighted according to their dividend yield rather than price-weighted like the Dow Jones Industrial Index. The end result is a higher portfolio yield. Both the fund and the index are rebalanced semi-annually.

Here are Kate’s most recent comments on the ETF:

“The Index is designed to provide exposure to dividend-paying equity securities in the Dow Jones Industrial Average weighted by their 12-month dividend yield over the prior 12 months. Only securities with consistent dividend payments over the previous 12 months are included in the index. This is closely related to the current strength in value stocks and is a way to stabilize your portfolio during a market downturn.

“In times of market weakness, dividend-paying equities are a good way to generate return. We deliberately purchased this fund off its highs, as our back-testing indicates this has potential to rise in the near term. This ETF allows you to generate returns through quality companies’ dividend payments, even during a broad market downturn.”

This ETF is rated 5 stars by Morningstar. According to the most recent report, the top three S&P sectors held by the fund are: Healthcare (21.47% of assets); Technology (17.75%); and Financial Services (12.04%).

NameSymbol% Assets
International Business Machines CorpIBM8.17%
Dow IncDOW6.25%
Verizon Communications IncVZ6.08%
Chevron CorpCVX6.06%
Cisco Systems IncCSCO5.40%
Coca-Cola CoKO5.19%
Walgreens Boots Alliance IncWBA5.04%
Merck & Co IncMRK4.96%
3M CoMMM4.82%
Amgen IncAMGN4.15%

The fund’s top three holdings are from the technology, basic materials, and telecom industries:

The largest holding in DJD is International Business Machines Corporation (IBM), which comprises 8.17% of the portfolio. IBM is a company that has reinvented itself numerous times, continues to pay a great dividend (yielding 4.79%) and is now benefiting from its ongoing shift into hybrid cloud computing and artificial intelligence (AI). Today, the company is well-diversified within the tech industry, manufacturing computer hardware and software, and also providing hosting, consulting and research services.

For its latest quarterly results, IBM saw an 8% rise in revenues year over year, to $14.2 billion.

IBM CSOM 20220511

DJD’s second largest holding is Dow Inc. (DOW), 6.25% of the ETF’s assets. This large chemical company was founded in 1897. It markets its industrial products all over the globe. The company focuses on materials science and offers a range of solutions for packaging, infrastructure, mobility, and consumer applications, including polyurethanes, silicones, additives, adhesives, conductive materials and more.

The shares have a nice 4.09% dividend yield and trade at a very discounted P/E of 7.26.

Once again, in its latest quarter, DOW beat analysts’ estimates on both the top and bottom lines, with revenues coming in at $15.3 billion and EPS of $2.34.

Looking forward, earnings forecasts are rising for DOW, with 20 analysts increasing their estimates in the past 30 days.


The third largest holding in DJD is Verizon Communications Inc. (VZ), making up 6.08% of the portfolio. Verizon is the largest provider of wireless services in the U.S.

The shares of VZ have not held up as well as IBM and DOW in the recent market volatility, but the steady dividend yield of 5.30% helps take away some of the pain.

The telecom sector is highly competitive, and VZ has recently had a bit of a downturn in its subscriber base. The good news is the decline wasn’t as bad as expected—actually less that what analysts had forecast—36,000 vs. the 75,000 estimate.

More importantly, 5G is beginning to expand, initially in the sub-6 gigahertz range, and Verizon owns the most spectrum in that band. Also, the company leads the industry in the millimeter-wave spectrum, the ultimate destination for the industry.


As you can see from the following chart, DJD is holding up very well during the recent market turmoil. And its steady dividend and value orientation will help ease your overall portfolio risk as the market seesaws back and forth. Lastly, while every sector except energy and utilities are showing losses in 2022, this ETF is actually in the black.


Invesco Dow Jones Industrial Average Dividend ETF (DJD)

Net Asset Value: $45.53

YTD: 3.29%
1-year: 3.09%
3-year: 11.71%
5-year: 13.61%
Risk Rating: Low
Expense Ratio: 0.070%
Dividend yield: 2.96%

Why DJD:

Conservative pick during market volatility

Steady dividend yield to mitigate the risk and appreciation challenges during market ups and downs

Holds household-name companies with long histories and attractive track records

Large-cap, value-oriented

About the Analyst: Kate Stalter, Chief Analyst, Cabot ETF Strategist
Kate is a former asset manager and current trading coach and financial writer. She’s best known as the author of retirement guide, “Don’t Let Your Money Kick the Bucket Before You Do,” as well as being the host of the MarketBeat podcast. Kate has worked with thousands of people, putting investment strategies into place, developing financial plans so their money lasts a lifetime. And she is dedicated to helping Gen X-ers and Boomers achieve financial security and prosperity through developing sound money strategies. Her work has been featured in US News & World Report, Forbes, Investor’s Business Daily and Financial Advisor magazine.
As our resident ETF expert, I wanted to pick Kate’s brain about the markets, sectors, and individual ETF issues. Here’s our interview:

Nancy: Investors are increasingly concerned with the ongoing pressures on the markets: the Russian-Ukraine conflict, rising gasoline prices, increasing interest rates, and escalating inflation. This isn’t the first time that investors have faced threats to their retirement goals, but in recent times, they have not been tasked with so many challenges at once. I realize that you don’t have a crystal ball, but what general short- and mid-term advice would you give investors to weather this market storm?

Kate: The traditional 60/40 portfolio is not appropriate for this current market environment. Investors must take a more tactical approach, especially if they are in or near retirement, and want to avoid drawdowns while equities are at lows.

Nancy: Are you a believer in exiting the markets during such volatility, or just reducing your overall exposure to the stock markets?

Kate: I wouldn’t necessarily recommend reducing equity exposure, but it has to be done tactically, with an eye toward hedging against risk, and using options (which you can use with ETFs) and inverse ETFs, as needed.

Nancy: In your newsletter, you are currently allocating funds to three portfolios: aggressive, moderate, and conservative, as well as a category for Undiscovered ETFs. And you also provide recommendations for Strategic vs. Tactical strategies. Can you explain the difference between Strategic and Tactical? And do you strive to include each strategy in all of your investing styles?

Kate: Strategic allocation typically means defining long-term goals and adhering to a portfolio constructed to achieve those goals, depending on risk tolerance, time horizon and other factors. This is not “buy and hold,” but instead relies upon asset classes that are rebalanced and changed as needed over time, or as market conditions dictate.

Tactical allocation involved more trading as a way of capturing market mispricing, or to capture asset classes currently performing well. Tactics are often oriented toward smaller steps and a shorter time frame.

The two don’t mix, which is why we have both Strategic and Tactical included in the advisory.

Nancy: Your portfolio also includes some exposure to emerging markets. Those markets have been hit pretty hard in the recent market volatility. Do you have a favorite emerging market right now, or do you think investors should limit their exposure to that market segment at this time?

Kate: No, I don’t have a favorite. In fact, the ETFs track a broad basket of emerging market equities. It’s always wise to limit exposure, as this is an especially risky asset class, but can also deliver, in certain market cycles, a higher return than developed market equities.

Nancy: I note that your portfolios are well-diversified, with limited recommendations in specific sectors. When the markets stabilize, do you plan to include more sector investing ideas?

Kate: That’s the aim of the Undiscovered Portfolio—to include asset classes or themes performing well in any market cycle, whether or not there is excess volatility.

Portfolio and Industry Update
In his latest updates, Brendan Coffey, Chief Analyst of Cabot SX Greentech Advisor, who recommended Archaea Energy (LFG) had this today:
“The landfill gas business shares are holding up well, but there are still signals their move lower is likely to continue. We’re above the major trendline supports here and we believe the business is well-insulated against the broader fears in the market. However, should a larger selloff come, few stocks are immune, and for that reason we’re going to hike our sell-stop to lock in a profit. Our prior stop was our buy price of 18.27. We’re going to shift that to ‘below 20,’ given the 50-day average is at 20.08 today, a spot where support should come in.”

However, in today’s update, Brendan noted, “Archaea shares tripped our stop-loss of ‘under 20’ with a close at 19.80 Monday. We should book a profit of around 8%. There is more support for LFG below here, particularly at 18.70, but with sectors broadly breaking support levels yesterday, we prefer to get out with a profit now.”

I concur. We can always add back later. SELL

Although the tin market is expected to grow to $8,207.0 million over the next five years, our iPath Series B Bloomberg Tin Subindex Total Return ETN (JJT) is being buffeted by the markets’ ill winds. With that in mind, I’m going to cut our losses. When the market shows signs of a long-term rebound, I will revisit this idea. SELL

GitLab Inc. (GTLB) reported that it has become an approved vendor under the Software Licensing Program (SLP) with the State of California. This contract allows state and local agencies, including educational institutions in California, to purchase GitLab software licenses at a discount, which will cut costs and make the procurement process more streamlined. Gitlab’s platform—which allows users to check individual lines of code for known vulnerabilities, rather than waiting until an entire program is completed, will create further efficiencies and cost savings for the state.

Tyler Laundon, Chief Analyst of Cabot Early Opportunities, recently issued this update on GTLB:

“Over time, GitLab’s strategic importance to its users has been growing. This is happening for a few reasons. For starters, as developers create and manage more code on GitLab’s platform their reliance on the company grows and their incentive to use disparate solutions from other providers decreases. It’s far easier to use one platform that does everything they need.

“Moreover, as the market evolves, GitLab is creating more DevOps tools to meet the needs of its growing user base.

“In the source code management (SCM) market, the stakes are high. While there are other solutions out there, including GitHub from Microsoft (MSFT) and BitBucket from Atlassian (TEAM), GitLab is seen as being led by a visionary management team, having a great culture and having the best platform in the SCM industry, which is growing toward $50 billion by 2025.

“Revenue is expected to grow by 52% to $70.3 million in Q4 fiscal 2022 (no date set yet) while EPS is seen around -$0.25. That result would mean fiscal 2022 revenue growth of 64% ($250 million) and EPS of -$1.40. In fiscal 2023, revenue is seen up 54% to $390 million while EPS is seen near -$0.96, a roughly 11% improvement over fiscal 2022.” Buy

Stock of the Month Portfolio
Price on
Div Freq.Gain/
Loss %
Archaea Energy Inc.LFG2/11/2216.2718.95N/AN/A16.47%Sell
iPath Series B Bloomberg Tin Subindex Total ReturnJJT3/3/22140.60108.76N/AN/A-22.65%Sell
GitLab Inc.GTLB4/13/2249.0238.03N/AN/A-22.41%Buy
Invesco Dow Jones Industrial Average Dividend ETFDJDNEW--44.56--N/A--Buy

Dividends: A Safe Haven During Market Volatility
During the rapid growth of the markets over the past few years, dividend-paying stocks have mostly been unloved. And that’s normal. But now that hair-raising market ups and downs seem to be “the new normal,” dividends can offer investors a safe haven in two ways:

  • Dividend-paying stocks are generally less volatile than the cutting-edge growth stocks that have led the markets recently
  • The cash flow from the dividends help investors mitigate the losses from the more speculative portion of their portfolios.

In the tech boom of the early 2000s, dividend-paying stocks were considered a tool for retirement portfolios—too boring for the hipper investors. At that time, I was making the rounds of the various financial expos, warning investors about “putting all their investment eggs in wickedly exciting but terrifying tech companies,” because 1) no one could understand what they did; and 2) their P/Es were so out of bounds they were ridiculous.

And of course, when the bust happened, those same old staid stocks helped save countless portfolios (including mine) from near-death by providing a stream of steady cash flows.

While we may not be in exactly the same market position as back then, we are certainly courting extreme volatility, and steady cash flows seem like a good idea to me.

In a Wall Street Journal article last week, it was reported that while higher paying dividend stocks—like almost all stocks—have recently taken a beating, they are actually leading the market so far in 2022, up 3.9%. That compares pretty favorably to the S&P 500, which is in the double-digit negative return category, year to date.

The interest in dividend-paying stocks is most likely due to the rise in interest rates, which, paradoxically, usually result in making such stocks less attractive to investors, as rising rates generally portend a booming economy that makes growth stocks more interesting. But today the catalyst boosting rates is increasing inflation, which breeds recession worries. Also, geopolitical uncertainty over the Russia-Ukraine conflict has added to investor worries, causing them to seek less volatile investments. Consequently, investors are flocking to more value-based stocks that also pay dividends.

Janus Henderson expects that dividends paid by U.S. companies will hit all-time highs in 2022, boosted by still-growing earnings.

Last year, U.S. stocks in the Janus Henderson Global Dividend Index (the largest 1,200 companies in the world) paid out a record $522.7 billion in dividends, led by Microsoft Corp., AT&T Inc., Exxon Mobil Corp. and Apple Inc. Dividends grew 3.5% from 2020 and rose 28.6% since 2015.

Top 2021 Dividend Payers

For this year, dividends in this index are expected to rise to $562 billion, a 7.5% increase.

Janus further reports that the largest dividend growers have been in healthcare, with dividends rising some 70% since 2015. On healthcare’s heels, are financials and technology companies, which boosted their dividends 60% over the same time period. As you can see in the following chart, some sectors, including oil, gas and energy, industrials, and communications and media haven’t yet seen much in the way of dividend increases over that time.


Our recommendation this month, the Invesco Dow Jones Industrial Average Dividend ETF, holds 30 of the largest companies that have track records of steady dividends. In these times of market uncertainty, I can’t think of a better place to park some of your funds.

The next Cabot Money Club Stock of the Month issue will be published on June 9, 2021.

About the Analyst

Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with for many years as an editor and interviewer for their on-site video studios.

As a lecturer and educator, Nancy has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show. She has also taught finance, economics and banking at the college level, and has been quoted extensively in The Wall Street Journal, Investor’s Business Daily, USA Today, and BusinessWeek.

Nancy’s book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.