It’s been a good spring in the markets and the economy. Unemployment claims are declining, housing is staying steady, and consumer confidence—as well as consumer spending—are rising.
And as we begin to emerge from the pandemic, economic growth looks healthy, with the latest GDP quarterly estimates coming in at 8.2%.
Our Feature Recommendation this month is a Financial company that participates in both the insurance and asset management industries. It pays an attractive dividend, and is seeing healthy growth, especially in Asia.
Our portfolio is sailing along, and we think this addition to our holdings will be a profitable move.
We hope to see you on our June Platinum Club webinar; it’s scheduled for June 8 at 2pm. In the meantime, don’t hesitate to contact us with any questions or comments.
Happy Investing!
Nancy Zambell and Kate Stalter
State of the Markets | WSBS 621
Market Commentary
As May winds down ahead of the Memorial Day holiday weekend, the S&P 500 was essentially flat, up less than 1% from its April finish.
That’s not so bad, considering that the market rally, which picked up steam in April, became choppy again in May. Not only is post-rally profit-taking at work, but some real challenges reared their heads.
For example, most companies reporting earnings in recent weeks are citing higher commodity prices as a headwind. Bottlenecks of any number of supplies, ranging from chicken to iron ore, could impact earnings going forward.
In addition, companies that import goods or materials from overseas are facing steeper freight prices. If that weren’t enough, companies are paying higher wages to lure workers back.
However, those challenges are balanced by consumer demand that came back much faster than analysts expected after a long year of restrictions. Companies from Cracker Barrel (CBRL) to Deere (DE) reported better-than-expected results recently, joining a record number of companies topping views.
That doesn’t necessarily mean stocks will be immediately off to the races, though, as the S&P 500 performance indicates.
While you might think the wild price swings in cryptocurrencies are separate from equities, they do affect appetite for risk assets. That translated to a decline in technology and consumer discretionary stocks in the past month. Those sectors are home to many fast growers, which can lead the market higher or lower, depending on broad sentiment.
Global stocks are also showing a strong rebound as the world emerges from the pandemic. The MSCI EAFE ETF (EFA), which tracks the performance of large and mid-cap stocks throughout 21 developed markets, excluding the U.S. and Canada, has returned 10.36% year-to-date and 5.43% over the past three months.
Dow Jones Industrial Average
S&P 500
Nasdaq Composite Index
Feature Recommendation | WSBS 621
Sun Life Financial Inc. (SLF) is a diversified financial services company, headquartered in Toronto, Canada. It is the third largest insurer in Canada. The company provides insurance, wealth and asset management solutions to individuals and corporate clients worldwide. Some of its products include:
- Term and permanent life, health, dental, critical illness, long-term care, and disability insurance
- Reinsurance
- Investment counselling and portfolio management
- Mutual funds and segregated funds
- Trust and banking services
- Real estate property brokerage and appraisal services
- Merchant banking services
And the company is well-diversified geographically, also.
Please insert pie charts from p 8 of the attached presentation:
Sun Life is a survivor. In 2021, the company will celebrate 150 years in business, evolving through many market, industry, and economic cycles. And in the past year, Sun Life—like the rest of us—is emerging from a year of challenges due to COVID-19.
And while the coronavirus rattled most industries, Sun Life—as evidenced by its first quarter—not only survived, but prospered!
For the quarter ending in March, the company’s net income came in at $937 million, heartily trampling the $391 million Sun Life earned in the same quarter last year. EPS was $1.45, compared to $1.31 in the first quarter of 2020.
Underlying net income (net income minus recurring or exceptional costs) of $671.1 million (C$850 million) was up 16.9% year over year, due to favorable morbidity experience in the United States and favorable credit experience in Canada.
Rising sales in Asia limited the small decline in Insurance sales in Canada, while total Wealth sales rose 16.3% year over year to $52 billion (C$65.9 billion), as a result of growing revenues in Asia.
Asia is a burgeoning market for Sun Life:
- Philippines: Ranked 1st in insurance sales; the #1 largest mutual fund provider based on AUM
- Indonesia: 9th in insurance sales; overall market share of 3%
- Vietnam: 6th in insurance, supported by newly launched partnership with Asia Commercial Bank
- China: 8th in insurance among foreign JVs, increase of 30% versus Q1 2020
- India: 7th in individual insurance, with an overall market share of 5%, 4th largest mutual fund provider in the country based on AUM
- Malaysia: 7th in insurance sales, 3rd in bancassurance, with a bancassurance market share of 12%
Source: Sun Life Financial Q1 Investor Presentation
In Canada, Sun Life’s underlying net income increased 18% year over year to $225 million (C$285 million), and in the U.S., was up 12.5%, to $135 million (C$171 million).
The company’s Assets under Management, currently U.S. $1.03 billion (C$1.30 billion) grew exponentially, by 41.6%, and produced underlying net income of $229.8 million (C$291 million), up 28% year over year.
That’s a pretty impressive picture! And the future looks bright, too. Seven analysts have increased their earnings estimates for Sun Life in the past 30 days.
But the company’s challenges are not over. The low interest rate environment produces rate risk in the insurance segment, and competitive pressures in the investment division.
As well, insurance is a traditionally paper-pushing industry and it’s being brought kicking and screaming into the tech-driven world of today—primarily due to the COVID challenges of 2020. For the first time, we are seeing widespread adoption of electronic applications, e-signatures, and electronic policy delivery. While the initial expenses for conversion may add up, the end result will keep costs down, grow premiums (due to the ease of getting insurance) and drive more money to earnings.
Further down the road, more complex technologies like artificial intelligence, robotic process automation, cognitive intelligence and blockchain should help insurers expand their margins—again, dropping more money to the bottom line.
Sun Life pays an annual dividend of $2.20 per share, for a yield of 3.42%, which is a nice addition to the expected share price appreciation.
Institutional holdings are around 55%, but recent purchases have outpaced sales by more than 10 million shares. The top five institutional holders are:
- Royal Bank of Canada, 8.06% of shares
- Vanguard Group, Inc. (The), 3.06% 1
- Price (T.Rowe) Associates Inc, 2.97%
- FIL LTD, 2.74%
- Bank of Montreal/Can/, 2.46%
At this level, shares of Sun Life look attractive. The shares appear undervalued, trading at a price-earnings ratio of 12.9. The average P/E for the financial services sector is currently 14.4.
Sun Life Financial Inc. (SLF) 52-Week Low/High: $ 10.15 - 13.03 Shares Outstanding: 585.5 million Institutionally Owned: 55.41% Market Capitalization: $31.592 billion Dividend yield: 3.44%, paid quarterly Website: sunlife.com | Why Sun Life: Rising Assets under Management Expanding rapidly in Asia Attractive dividend Undervalued
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Technical Analysis
by Kate Stalter
Sun Life Financial (SLF)
Shares of Sun Life Financial have marched steadily higher since beginning their rebound out of the 2020 correction in April of last year. It’s pulled back into consolidations along the way and is currently trading between 53 and 54, down 3% from its May 10 high of 55.07.
Shares are up 21.71% year-to-date and 65.91% over the past year.
Its corrections over the past year have been fairly orderly, with no unusually sharp downturns. That’s in keeping with the broader character of the market.
Sun Life is currently trading below its 10-day moving average and above its 50-day line. If that level of support continues, the stock remains in a buy zone. It’s successfully tested its 50-day average throughout 2021 as it rallied to its high in early May.
Price Target:$69.50
Stop Loss: $45.00
Sector Round-Up | WSBS 621
| Percent Gain/Loss | |
| May 1-May 27 | |
| S&P 500 Index | 0.19% |
| Communication Services (XLC) | 2.34% |
| Consumer Discretionary (XLY) | -3.97% |
| Consumer Staples (XLP) | 2.41% |
| Energy (XLE) | 8.56% |
| Financials (XLF) | 5.65% |
| Health Care (XLV) | 0.35 |
| Industrials (XLI) | 1.78% |
| Materials (XLB) | 4.49% |
| Real Estate (XLRE) | 1.61% |
| Technology (XLK) | -2.84% |
| Utilities (XLU) | -2.01% |
Source: Select SPDR ETFs
The financial sector, home to this month’s featured stock, Sun Life Financial, is still posting solid gains on the heels of robust year-to-date returns.
Sun Life has a market cap of $31.13 billion, but is not a component of the S&P 500, since it’s a Canadian firm.
The Financial Select Sector SPDR ETF (XLF) is up 5.65% in the past month. It’s outpacing the broader SPDR S&P 500 ETF (SPY) in the past month, which returned 0.19%
The most heavily weighted stocks in the S&P financial sector, and their one-month returns:
Berkshire Hathaway (BRKB): 4.65%
JPMorgan Chase (JPM): 7.76%
Bank of America (BAC): 7.22%
Wells Fargo (WFC): 5.31%
Citigroup (C): 8.98%
As you can see, the performance of these heavily weighted stocks continues to propel the sector higher.
The leading sector this month is energy, spurred by higher demand as global economic activity picks up.
Weekly gasoline prices in the U.S. are at their highest levels in two years. As a driver, you may not appreciate that increase at the pump, but as an investor, that is boosting your energy sector return.
It’s not just summer travelers in the U.S. who are behind the price increases; industrial energy use is also on the rise.
The Energy Select Sector SPDR ETF (XLE) returned 8.56% in the past month.
In a related uptrend, the Materials Select Sector SPDR ETF (XLB) is up 4.49% on a one-month basis.
That’s because prices for commodities, as industrial inputs, are up as demand rose faster than anticipated.
The financial, energy and materials sectors are all trading essentially sideways at the moment, in tandem with the broader market.
Portfolio Updates | WSBS 621
Conservative Stocks
As a conservative investor, you are less willing to accept market swings and significant changes in the value of your portfolio in the short- or long-term. Capital preservation is your primary goal, and you may plan on using the principal from your investments in the near-term, preferably as a steady income stream. The average level of return you expect to see is 5%-10%, annually.
Orange S.A. (ORAN)
Orange is a telecom company that boasts the leading fiber platform in rural France. Its offerings include mobile services, such as voice, SMS, and data; fixed broadband and narrowband services; as well as fixed network business solutions, including voice and data; and convergence packages. Additionally, the company sells mobile handsets, broadband equipment, and connected devices and accessories.
This year, the stock has hit resistance around 13, which remains the price point to watch as the stock rallies out of its current consolidation.
The Coca-Cola Company (KO)
Here’s a stock that’s reflecting the “reopening” theme so prevalent throughout markets this month. Coke cleared a cup-with-handle base on April 19, passing a buy point above 53.94 in above-average volume, and has risen nearly 2% since.
This stock was hammered by pandemic-driven closures of restaurants, movie theaters, theme parks and other out-of-home locations, where most of the company’s sales are made. However, as more people are getting out to reopened venues, Wall Street analysts have raised their price targets and outlooks. Analysts’ consensus rating on the stock is “buy,” with a price target of 58.17, a 6.12% upside.
TC Energy Corporation (TRP)
The oil-and-gas transportation and storage company rallied to a 14-month high of 51.02 on May 10, following the company’s first-quarter earnings report.
Net income was $1.15 per share, topping views of $0.84 per share. Revenue was $3.381 billion. The company has made significant capital investments in the past five years, and it remains to be seen whether investors see a payoff in the not-so-distant future. Analysts expect full-year earnings per share of $3.51, which would be a decrease from 2020, but Wall Street sees earnings growth returning in 2022. Investors may need a little patience before realizing the full potential of this stock.
Moderate Stocks
As a moderate investor, you seek longer-term investment gains. You are comfortable with some swings in your portfolio’s performance, but generally seek to invest in more conservative stocks that build wealth over a substantial period of time. The average level of return you expect to see is 10%-25% annually.
National Storage Affiliates Trust (NSA)
The self-storage REIT had a strong month in April, with a price rise of nearly 14%. It added slightly to those gains in May.
The company reported its second quarter on May 4, earning $0.49 per share, up 23% from the year-earlier quarter, and topping estimates of $0.45 per share. Revenue was $123 million, a gain of 18%, beating views of $117.62 million. The company has been growing through acquisition, in addition to increasing same-store sales.
In the earnings call, CEO Tamara Fischer noted the company faces some challenging year-over-year comparisons for the second half of 2021, given the strength in the latter part of 2020.
Conagra Brands, Inc. (CAG)
The packaged foods company is trading below its August 27 high of 39.34, hitting resistance between 38 and 39. The stock didn’t get much of a boost after reporting an earnings and revenue beat on April 8. Still, analysts believe packaged foods, which were in high demand during the stay-home days of the pandemic, have room to run. Analysts have a “hold” rating on the stock, with a price target of 38.50, a 1.37% upside. One possible headwind: Conagra is among a slew of food producers and restaurants warning that higher commodity prices could result in higher prices for consumers. If consumers won’t pony up, that could hurt earnings. Conagra owns a number of familiar brands, including Duncan Hines, Hunt’s, Marie Callender’s and Healthy Choice.
The Toronto-Dominion Bank (TD)
This multinational bank stock rallied to a high of 73.74 on May 18, then retreated to its 10-day moving average. It’s trading sideways this week, a sign that big investors are holding shares, neither buying nor selling in bulk.
Toronto-Dominion is currently paying out an annual dividend of $2.57 per share, down from $3.11 per share in 2020. Dividends are historically a reason investors hold large-cap stocks that may not appreciate as quickly as small caps. However, the price appreciation on this stock has been excellent. Its one-year return is 90.22% and its year-to-date return is 31.72%.
Spirit Realty Capital (SRC)
This real estate investment trust is forming a shallow consolidation below its April 30 high of 48.05.
Spirit is a net-lease REIT, which means that its tenants are responsible for the payment of most, if not all, operating expenses including property taxes, insurance, and maintenance. Most of Spirit’s investments are in single-tenant, operationally essential real estate assets, subject to long-term leases (usually 10-20 years). The current dividend yield is 5.31%. Analysts see full-year earnings per share of $3.05, an increase of 3%.
Aggressive Stocks
As an aggressive investor, you primarily seek capital appreciation and are open to more risk. Swings in the market, whether short term or long term do not impact your investment decisions and you have confidence that volatility is necessary to achieve the high return-on-investment you are looking for. You typically expect a 25%+ return, annually, though you do not need your principal investment immediately.
OneMain Holdings, Inc. (OMF)
The personal lending company, which specializes in customers with subprime credit, is trading just below its May 3 all-time high of 58.12. For the month of May, it’s down 1.84%. That’s not anything to be concerned about, as the broader market has wobbled lately.
It advanced 23.71% year-to-date and 189.29% over the past 12 months. It’s more than doubled since being added to the portfolio. Earnings growth accelerated in the past two quarters. This is a mid-cap, with a market capitalization of $7.497 billion. Inherently, mid-caps are often more volatile than larger stocks, due to liquidity issues, as well as sparse analyst coverage and lower institutional ownership.
This stock has a beta of 1.46, another indication that it is more volatile than the broader market. However, as trade settled down over the past month, that beta decreased. Still, investors should be prepared for large price swings on occasion.
Textainer (TGH)
The shipping industry has been red hot in recent months, as the pace of online ordering accelerated during the pandemic. In fact, prices for shipping have been on the rise, as shipping containers and vessels have been in short supply due to increased demand. These days, industrial manufacturing is also spurring growth in the shipping industry.
Textainer is a Bermuda-based container leasing company, with a one-year price gain of 256.62% and a year-to-date return of 47.45%.
The company reported its first quarter on May 17. Earnings per share came in at $1.16 per share, handily beating estimates of $0.98. That marked a year-over-year gain of 582%. Revenue was $169.2 million, missing views, but representing a 16% increase.
Primoris Services (PRIM)
Primoris provided maintenance services for power plants, refineries and other facilities. Yearly earnings per share accelerated over the past four years, and analysts expect that trend to continue this year, with earnings per share of $2.43, a 12% year-over-year gain. That outlook was boosted recently.
The company reported its first quarter on May 5. Wall Street expected a loss of $0.09 per share on revenue of $764.72 million. However, the company reported earnings of $0.12 per share on revenue of $818.3 million, exceeding views on the top- and bottom-lines, and marking year-over-year gains on both.
The stock is currently in a consolidation, but with the outlook still bright for infrastructure plays, we’re continuing to hold.
Current Portfolio | WSBS 621
| Wall Street’s Best Stocks Portfolio | ||||||||
| Conservative Stocks | Date Bought | Symbol | Price Bought | Price on 5/31/2021 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| The Coca-Cola Company | First Issue | KO | $41.90 | $55.29 | 0.42 | Quarterly | 33% | Hold |
| Orange S.A. | 5/4/21 | ORAN | $12.61 | $12.80 | 0.00 | Semi Annually | 2% | Buy |
| Sun Life Financial Inc. | New | SLF | — | $53.86 | — | — | — | Buy |
| TC Energy Corporation | First Issue | TRP | $42.73 | $51.06 | 0.69 | Quarterly | 21% | Hold |
| Moderate Stocks | Date Bought | Symbol | Price Bought | Price on 5/31/2021 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| Conagra Brands, Inc. | First Issue | CAG | $29.87 | $38.10 | 0.28 | Quarterly | 28% | Hold |
| National Storage Affiliates Trust | First Issue | NSA | $27.39 | $46.10 | 0.35 | Quarterly | 70% | Hold |
| Spirit Realty Capital | First Issue | SRC | $42.27 | $47.26 | 0.63 | Quarterly | 13% | Hold |
| The Toronto-Dominion Bank | First Issue | TD | $40.82 | $72.10 | 0.63 | Quarterly | 78% | Hold |
| Aggressive Stocks | Date Bought | Symbol | Price Bought | Price on 5/31/2021 | Dividends YTD | Div Freq. | Gain/ Loss % | Rating |
| OneMain Holdings, Inc. | First Issue | OMF | $29.49 | $57.84 | 4.65 | Quarterly | 112% | Hold |
| Primoris Services | 3/2/21 | PRIM | $34.98 | $31.79 | 0.06 | Quarterly | -9% | Hold |
| Textainer Group Holdings | 4/1/21 | TGH | $28.77 | $33.70 | 0.00 | — | 17% | Hold |
| Sold Positions | ||||||||
| Conservative Stocks | Symbol | Date Bought | Date Sold | Price Bought | Price Sold | Gain/ Loss % | Dividends YTD | Div Freq. |
| Unilever PLC | UL | First Issue | 5/3/21 | $42.84 | 59.12 | 39% | 0.51 | Quarterly |
| Clean Ener-gy Fuels Corp. | CLNE | First Issue | 3/2/21 | $2.63 | 13.66 | 419% | 0.00 | — |
| Aggressive Stocks | Symbol | Date Bought | Date Sold | Price Bought | Price Sold | Gain/ Loss % | Dividends YTD | Div Freq. |
| cbdMD, Inc. | YCBD | First Issue | 3/31/21 | $2.25 | 4.06 | 80% | 0.00 | — |
The More You Know | WSBS 621
Today, I want to address a strategy that has long been a favorite of investors in their golden years—Dividend Investing. For many decades, dividends were mostly paid by blue chip, financially healthy, conservative companies—just the types of stocks that are attractive to retired investors who don’t want to take on excess risk but love the cash flow endemic to dividend-paying stocks.
For many years, it was rare to see a high-growth company issuing dividends, other than Intel (INTC), who began paying them in 1992. The tech boom and bust of the early 2000’s scared a lot of investors away from technology companies, so many of the more established tech companies decided a dividend strategy was one way to lure them back. Microsoft (MSFT) began paying dividends in 2003; Cisco (CSCO) followed in 2011, and now, many tech companies pay a dividend today, including:
| Tech Company | Dividend Yield (%) |
| Apple (AAPL ) | 0.69 |
| Microsoft (MSFT ) | 0.89 |
| Oracle (ORCL ) | 1.61 |
| Qualcomm (QCOM ) | 2.05 |
| Texas Instruments (TXN ) | 2.16 |
| Corning (GLW) | 2.19 |
| HP (HPQ) | 2.43 |
| Intel (INTC ) | 2.44 |
| Cisco (CSCO ) | 2.78 |
| Seagate Technology (STX) | 2.87 |
| Hewlett Packard Enterprise Co. (HPE) | 2.99 |
| Juniper Networks (JNPR) | 3.01 |
| Broadcom (AVGO) | 3.13 |
| ChipMOS Technologies (IMOS) | 4.16 |
| International Business Machines (IBM ) | 4.56 |
| IBM (IBM) | 4.56 |
| NVE Corp. (NVEC) | 5.82 |
As you can see, some of these tech companies are paying very handsome dividends. However, on average, the tech stocks in the S&P 500 Index recently yielded 1.00%, compared to about 1.38% for the broader market.
Currently, more than 75% of the companies in the S&P 500 index pay a dividend.
Consequently, it’s not unusual for growth as well as value companies to pay some sort of dividend—especially if they’ve been around for a while. But it is rare to find a company in a high-growth stage, such as a start-up technology or cutting-edge biotech firm, to pay dividends at all.
As you can see from the following graph, for the last 46 years, investors who bought dividend-paying stocks were well paid!
Many savvy, long-term investors realize that dividend investing is a great method to not only build in extra appreciation into your portfolio, but also a successful strategy for keeping risk down during uncertain economic and market cycles. During volatile periods, investors often flock to dividend-paying stocks as a way to create cash flow in their portfolios, as well as to take advantage of their more stable characteristics which may help to mitigate any losses from more speculative stocks that may decline more precipitously.
The next Wall Street’s Best Stocks issue will be published on July 6, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.
President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
176 North Street, PO Box 2049, Salem, MA 01970 USA
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