Please ensure Javascript is enabled for purposes of website accessibility
Dividend Investor
Safe Income and Dividend Growth

June 9, 2021

It’s time to think about investing on the other side of the pandemic.

When the environment normalizes, investors will find the best opportunities in the same place they did before – technology. Growth in technology exponentially eclipses all other industries. And the pace of growth will accelerate as new and game-changing technologies are on the cusp of transforming the world as 5G continues to roll out.

Sure, the cyclical sectors are coming back. There will also be solid growth in other industries. But nothing will compare to the immense growth in technology. The sector will rule the market for many years to come.

Recent stumbles in the sector create an opportunity for the great normalization ahead. In this issue I highlight two portfolio positions perfectly positioned to benefit in both the long and short term.

Cabot Dividend Investor 621

Profit from Two Sleeping Giants
It’s hard to get away from the current headlines. It’s all about the pandemic and recovery. Lately, they’re throwing in some inflation talk to spice things up. But, as hard as it may be to believe, these headlines will fade away. The current smoke will clear. Then what?

It’s time to think about investing on the other side of the pandemic. The virus will soon be old news (good riddance). The Main Street economy will have recovered. And investors will be on the prowl for the next thing. When the environment normalizes, investors will find the best opportunities in the same place they did before – technology.

Of course, the sector has been under pressure lately. Technology stocks are still below the high of February. The sector is up one day and down the next. Stocks can’t get any traction.

It’s a reasonable consolidation after a two-year bender. Plus, growth may have gotten ahead of itself for some companies as trends were expedited during the lockdowns. But don’t let these short-term issues distract you. Technology is where the serious growth is.

There’s a good reason that technology has been by far the best-performing sector of the market for the past 10-year, 5-year and 3- year periods. We are in the midst of a technological revolution that is transforming the world.

Growth in the industry exponentially eclipses all other industries. And the pace of growth will accelerate as new and game-changing technologies are on the cusp of transforming the world as 5G continues to roll out at a fast clip.

Technology begets more technology. Technological advancement enables still-faster advancements going forward. It’s like a snowball rolling downhill. It’s a monster that is taking over everything. Here are just a few facts that illustrate the phenomenon.

  • 90% of the total world’s data was generated in the past two years.
  • Computing capacity doubles every 18 months.
  • Every second 127 new devices connect to the internet.
  • 66 billion people, or 59% of the world’s population, connect to the internet.
  • There will be an estimated 75 billion internet of things (IoT) devices connected by 2025, a threefold increase from 2019. Spending on IoT is expected to exceed $1 trillion by 2023.

Sure, the cyclical sectors are coming back. There will also be solid growth in other industries. But nothing will compare to the immense growth in technology. The sector will rule the market for many years to come.

Recent stumbles in the sector create an opportunity for the great normalization ahead. In this issue I highlight two portfolio positions perfectly positioned to benefit in both the long and short term.

Monthly Activity
May 12
Qualcomm Inc. (QCOM) – lowered rating from “BUY” to “HOLD”
Broadcom Inc. (AVGO) – lowered rating from “BUY” to “HOLD”
U.S. Bancorp (USB) – lowered rating from “BUY” to “HOLD”
Purchase ONEOK Inc. (OKE) stock $52.56

June 9
Digital Realty Trust (DLR) – lower rating from “BUY” to “HOLD”
Qualcomm Inc. (QCOM) – raise rating from “HOLD” to “BUY”
Broadcom Inc. (AVGO) – raise rating from “HOLD” to “BUY”
Valero Energy (VLO) – raise rating from “HOLD” to “BUY”

What to Do Now
The market hasn’t gone anywhere for more than a month now. It hasn’t gone down. The S&P 500 is still within a fraction of a percent of the all-time highs. It just stopped going higher, for now.

Technology stocks aren’t flying. The furious cyclical rally has leveled off. Investors are considering how much of the recovery is already priced into the market, and what lies beyond on the other side of the pandemic.

The sobered-up market is forcing the investing public to become level-headed. In the absence of a sexy alternative, investors are moving toward reasonably priced stocks with dividends and solid prospects going forward. Several former recovery laggards in the portfolio are quietly making new highs while the overall market flounders.

These newly surging positions include Enterprise Product Partners (EPD), Realty Income (O), STAG Industrial (STAG), Brookfield Infrastructure Partners (BIP) and Digital Realty (DLR). The momentum could last a while longer. Three of these stock (EPD, O, and BIP) are still in the BUY range.

Energy stocks are coming alive again. After a consolidation following the huge surge earlier this year, several stocks are approaching or eclipsing the highs of several months ago. Valero Energy (VLO) recently made a new high and the prospects continue to look bright. Midstream companies EPD and ONEOK Inc. (OKE) are also rated a BUY.

As well, longer-term oriented investors should consider Qualcomm (QCOM) and Broadcom (AVGO) after the recent malaise in the sector. While these stocks could continue to bounce around for a while longer, there is a good chance they will be priced much higher six months from now. The write-up is below.

Featured SToCK

Broadcom (AVGO)
Broadcom is a global infrastructure technology leader and an industry Goliath with $24 billion in annual net revenues. It’s an icon of the technology revolution with roots that trace back over 50 years to the old AT&T/Bell Labs. The company has many category-leading products in semiconductors and infrastructure software solutions.

The company essentially provides crucial equipment that enables technology to function as we know it today. It provides components that enable networks to operate together and communicate with each other from the service provider all the way to the end user and device.

All that may sound complicated. But there are two simple reasons for buying the stock. One, it is benefitting from the current environment as more businesses move online and into cloud-based applications. Two, it will get a huge benefit from the 5G rollout in the short and near term.

It’s worth noting something about this company. It can often be tough to pick the right horse as new technologies roll out, but Broadcom is well established at a crucial point that makes these technologies work, no matter who wins. To illustrate the advantage, about 90% of all internet traffic passes through Broadcom’s systems. That’s why the stock has returned over 1,600% over the last 10 years.

In the last reported quarter, overall revenues rose a solid 15% and wireless revenues soared 48%, primarily because of the launch of the new Apple 5G phones, which require more filters and other networking technology. That boost should continue in the quarters ahead.

Longer term, Broadcom will see greater demand as its chips will be an enabling technology behind powerful emerging trends like the internet of things, self-driving cars and artificial intelligence.

Then there’s the dividend.

At the current price, AVGO pays a 3% yield. That’s solid, especially considering the current low-interest-rate environment. But the growth potential of the dividend is the main event. Over the past three years, AVGO grew the payout by a staggering compound annual growth rate (CAGR) of 177%. The annual dividend grew from $1.94 in 2015 to $14.40 at the current rate.

Demand for products in cellular connectivity, networking and data centers is sharply on the rise and should continue to grow for some time. Broadcom is the one of the best in the business at providing the products that enable such things. More and more devices will need to connect to the internet and interact with each other as new 5G technology launches technological innovation and the digital economy to another level.

The timing seems great for AVGO, and the price is still reasonable, selling at just 18 times forward earnings. The stock is a great way for more conservative investors to play in the technology sandbox while getting a growing dividend.

Qualcomm (QCOM)
Qualcomm is the world’s largest supplier of chips for mobile devices. It also holds the patents for the key technology systems that are the backbone of all 3G and 4G networks. Historically, chips account for about three quarters of revenues while licensing from patents accounts for the rest, although the smaller area is more profitable and better insulated from competition.

Qualcomm has the only good 5G smartphone chip at a time when the new phones are rolling out. Grand View Research estimates compound annual growth (CAPR) of 69% in the smartphone chipset market through 2028. So far in the 5G smartphone rollout, Qualcomm’s revenue growth has mimicked that growth rate. In the first two fiscal quarters of this year, Qualcomm has grown revenue by an average of 67%, as well as 203% net income growth over the same period.

Although 5G phones account for most of the revenue, the company has huge growth in other areas like virtual reality and IoT, and those are the areas with huge long-term growth prospects. In the first quarter, IoT’s revenue grew 71% and its virtual reality chip helped the licensing segment grow 56%.

Although QCOM has returned 60% over the past year, it still sells at less than 16 times forward earnings because earnings have more than kept pace with appreciation. But the stock has floundered of late. It hit a high at the beginning of February and has fallen nearly 20% since.

The pullback in the technology sector is a lot to blame. But the market has some other concerns. There are still challenges to Qualcomm’s licensing agreements, as the company has a virtual monopoly for essential patents on 3G, 4G and 5G networks. The company won some important legal decisions this past year, but it isn’t out of the woods yet.

Then there’s competition. Apple, which is its biggest 5G phone customer, is aggressively trying to develop its own chip. The attempt has been underway for a while and the company will likely eventually make a competing chip. But that is likely a while away. Qualcomm also has many other customers and other sources of revenue.

But the torrid growth from the last two quarters is likely to last for a while. And a company with that level of growth is selling at less than 16 times forward earnings, far lower than the overall market.

I believe the market is undervaluing QCOM and its spectacular earnings. There is a good chance that QCOM will get another big surge when 5G becomes a bigger market story as it looks past the pandemic.

Portfolio at a Glance

High Yield Tier
Security (Symbol)Date AddedPrice AddedDiv Freq.Indicated Annual DividendYield On CostPrice on
6/8/21
Total ReturnCurrent YieldDiv Safety RatingDiv Growth RatingCDI OpinionPos. Size
AGNC Investment Corp. (AGNC)04-14-2117Monthly1.448.5%199%7.7%BUY1
Enterprise Product Partners (EPD)02-25-1928Qtr.1.806.40%254%7.3%8.37BUY1
ONEOK Inc. (OKE)05-12-2153Qtr.3.747.10%566%6.8%BUY1
Realty Income (O)11-11-2062Monthly2.814.5%7014%4.0%9.39.8BUY1
STAG Industrial (STAG)03-21-1824Monthly1.456.0%3887%3.9%5.25.9HOLD1/2
Verizon Communications (VZ)02-12-2058Qtr.2.514.3%574%4.4%8.69.2HOLD1
Current High Yield Tier Totals:5.7%23.0%5.2%
Dividend Growth Tier
AbbVie (ABBV)01-28-1978Qtr.5.206.7%11264%4.6%108.6BUY2/3
Broadcom Inc. (AVGO)01-14-21455Qtr.14.403.2%4643%3.1%BUY1
Brookfield Infrastructure Ptrs (BIP)03-26-1941Qtr.2.045.0%5666%3.7%6.58.6BUY2/3
Chevron Corporation (CVX)02-10-2190Qtr.5.165.7%10921%5.0%HOLD1
Digital Realty Trust (DLR)09-09-20147Qtr.4.643.2%16011%2.9%6.810.0HOLD1
Eli Lily and Company (LLY)08-12-20152Qtr.3.402.2%22147%1.5%10.48.3HOLD2/3
KKR & Co. Inc. (KKR)03-09-2148Qtr.0.581.2%5518%1.1%BUY1
Qualcomm (QCOM)11-26-1985Qtr.2.603.1%13465%2.1%8.09.0BUY1/3
U.S. Bancorp (USB)12-09-2045Qtr.1.683.7%6034%2.8%BUY1
Valero Energy Corp (VLO)06-26-1984Qtr.3.924.7%8310%4.7%6.48.6BUY1/2
Current Dividend Growth Tier Totals:3.9%33.9%3.1%
Safe Income Tier
BS 2021 Corp Bond (BSCL)08-30-1721Monthly0.422.0%218%1.8%9.04.0HOLD1/2
Invesco Preferred (PGX)04-01-1414Monthly0.745.3%1556%5.0%6.31.1HOLD1/2
NextEra Energy (NEE)11-29-1844Qtr.1.543.5%7273%2.1%9.48.0BUY1/2
Xcel Energy (XEL)10-01-1431Qtr.1.835.9%69177%2,6%9.57.0BUY2/3
Current Safe Income Tier Totals:4.2%78.5%3.0%

Portfolio Updates

High Yield Tier

CDIpyramidHigh

The investments in our High Yield Tier have been chosen for their high current payouts. These investments will often be riskier or have less capital appreciation potential than those in our other two tiers, but they’re appropriate for investors who want to generate maximum income from their portfolios right now.

AGNC Investment Corp. (AGNC – yield 7.7%) – This mortgage REIT has been trending relentlessly higher for more than a year. Yet, AGNC is still below the pre-pandemic high and a lot lower than the high of a few years ago, ahead of an environment that should be better. It’s just a very hospitable environment for this type of security. It pays a huge yield in a low-interest-rate world and should combine that return with appreciation in a booming economy with likely rising interest rates ahead. BUY

AGNC-060721

Next ex-div date: June 29, 2021, est.

Next ex-div date: June 29, 2021, est.

Enterprise Product Partners (EPD – yield 7.3%) – It’s a breakout. The midstream energy partnership just broke out to a new 52-week high and set a series of new ones over the past week. EPD has been in a bouncy uptrend all year. It’s just that it has moved so slowly it’s been hard to notice. But, quietly, EPD has returned over 30% YTD. Yet, the stock is still a good value at 20% below the pre-pandemic level and still almost 40% below the all-time high. You get a huge yield from a cheap stock ahead of a great environment for energy. And it has momentum too. BUY

EPD-060721

Next ex-div date: July 29, 2021 est.

Next ex-div date: July 29, 2021 est.

ONEOK Inc. (OKE – yield 6.8%) – This fellow midstream energy company, in the form of a regular corporation, is a similar story to EPD. But OKE is more volatile. That’s a good thing in a friendly energy environment. This stock has returned about 50% YTD but remains nearly 30% below the pre-pandemic high. That’s a bargain considering that the environment, and ONEOK’s profits, should be a lot better over the next few quarters than before the pandemic. BUY

OKE-060721

Next ex-div date: July 23, 2021 est.

Realty Income (O – yield 4.0%) – This is another former recovery dog that has come alive lately. O went sideways for nine months, but has moved nearly 20% higher since the beginning of March. It’s still below the pre-pandemic high while profits have increased since then. It has retail properties that were highly unpopular during the pandemic but should bounce back strongly in the full recovery. The overall market may be high priced, but it’s still a very good time to pick up this legendary income stock. BUY

O--060721

Next ex-div date: June 30, 2021 est.

Next ex-div date: June 30, 2021 est.

STAG Industrial (STAG – yield 3.9%) – This industrial REIT has fared much better through the pandemic than the previous stocks but has moved well beyond the all-time high. Its industrial and e-commerce properties remain in high demand and are benefitting as more cyclical properties in the full recovery. I still like the stock here, but it isn’t the bargain that the previously mentioned stocks are. HOLD

STAG-060721

Next ex-div date: June 28, 2021 est.

Next ex-div date: June 28, 2021 est.

Verizon Communications (VZ – yield 4.4%) – We’re still waiting for the Great Pumpkin. I’m hoping that 5G becoming a bigger story in the market in the post-pandemic environment will break this wireless giant stock out of its sideways funk. In the meantime, it’s a safe bet and a good down-market stock in case things get dicey. Verizon is a more focused wireless company and will most certainly benefit from 5G. I just don’t know when the market will start pricing in that fact. HOLD

VZ-060721

Next ex-div date: July 8, 2021 est.

Next ex-div date: July 8, 2021 est.

Dividend Growth Tier

CDIpyramidDiv

To be chosen for the Dividend Growth tier, investments must have a strong history of dividend increases and indicate both good potential for and high prioritization of continued dividend growth.

AbbVie (ABBV – yield 4.6%) – This biopharmaceutical stock really broke out from right after the election until late January. Then it went sideways for about four months. Now, it has broken out to a higher level but hasn’t run very far yet. It may be a slower slog higher going forward. But that’s OK. It’s trending in the right direction. I like owning a best-in-class biopharmaceutical company as the market normalizes. Health care is a good place to be as the population continues to age.

AbbVie also has several drugs pending approval later this year with the potential to boost the stock. And the newly acquired aesthetics business is doing great as the economy opens. That good news is partially offset by the fact that Congress is investigating the company regarding their drug pricing. BUY

ABBV-060721

Next ex-div date: July 14, 2021 est.

Next ex-div date: July 14, 2021 est.

Rating change “HOLD” to “BUY”
Broadcom Inc. (AVGO – yield 3.1%) – This technology powerhouse hasn’t done much since being added to the portfolio in January because of unfortunate timing. But this is a powerhouse that is certain to benefit from the continuing proliferation of technology as well as 5G in the near term. BUY

AVGO-060721

Next ex-div date: June 21, 2021

Next ex-div date: June 21, 2021

Brookfield Infrastructure Partners (BIP – yield 3.7%) – This infrastructure partnership is another slow-mover that has broken out to a new high this week. After going sideways for several months, BIP has moved about 6% higher over the past few weeks and has been making a series of new highs over the last week. Business is solid and earnings should get a boost this year from new acquisitions and a recovery in its transportation assets. It looks like BIP is benefitting from the market trending towards undervalued dividend stocks. BUY

BIP-060721

Next ex-div date: August 25, 2021 est.

Next ex-div date: August 25, 2021 est.

Chevron Corp. (CVX – yield 5.0%) – I don’t think energy is done yet. Demand is increasing and prices are rising. Crude oil just crossed the $70 per barrel threshold for the first time since October 2018. CVX is still a good value ahead of a good energy environment and rising profits. CVX has been in a sideways funk since early March as it consolidates after a big surge higher. But I expect another surge in the months ahead. HOLD

CVX-060721

Next ex-div date: August 18, 2021 est.

Rating change “BUY” to “HOLD”
Digital Realty Trust (DLR – yield 2.9%) – Once again, a former loser is finding it mojo. This data center, niche REIT has been an odd bird. It was a superstar performer during the pandemic. But it peaked last summer and had been floundering until March. But it has moved nearly 30% higher since early March, The stock is back near the all-time highs made last summer. I’m not sure if DLR will break out to a new level or find resistance at this crucial juncture. It’s well worth holding but it has moved beyond the buy price. HOLD

DLR-060721

Next ex-div date: June 14, 2021

Next ex-div date: June 14, 2021

Eli Lilly and Company (LLY – yield 1.5%) – The pharmaceutical stock had a huge day on Monday. LLY closed over 10% higher on the day. It had been up a lot more during the day and made a new all-time high but still closed a lot higher. The big news was FDA approval of Biogen’s (BIIB) Alzheimer’s treatment. The news stoked optimism about Lilly’s pending Alzheimer’s treatment. A new Alzheimer’s treatment hasn’t been approved in decades and the market is massive.

Lilly has a better drug that could be a potential mega blockbuster. The fact that the FDA gave Biogen’s drug expedited approval greatly increases the odds that Lilly’s phase III candidate will gain approval, and perhaps on an expedited basis. Such a drug could be a game-changer for the stock. We’ll see what happens. But it’s certainly positive news. HOLD

LLY-060721

Next ex-div date: August 13, 2021 est.

Next ex-div date: August 13, 2021 est.

KKR & Co. Inc. (KKR – yield 1.1%) – The alternative investment wealth manager stock had a huge run since late January but has pulled back from the high of early May. It makes perfect sense that the stock is taking a breather after a big surge. And it may flounder for a while longer. But business is very good in a full recovery and booming economy. KKR also has the added advantage of being in a high-growth niche in the asset management business. I expect good returns between now and the end of the year. BUY

KKR-060721

Next ex-div date: August 19, 2021 est.

Next ex-div date: August 19, 2021 est.

Rating change “HOLD” to “BUY”
Qualcomm Inc. (QCOM – yield 2.1%) – Great things are happening at the company and the recent earnings report reflects that. There is a huge amount of growth for a company selling at just 16 times forward earnings. Qualcomm should continue to benefit mightily from the 5G rollout in the near term, as it earns royalties on phone sales. When 5G becomes a bigger story in the market, QCOM could have another big run higher. BUY

QCOM-060721

Next ex-div date: September 2, 2021

Next ex-div date: September 2, 2021

U.S. Bancorp (USB – yield 2.8%) – This best-in-class bank is a more conservative play on the financial sector resurgence. It didn’t move up quite as fast as some financial stocks earlier in the year. But it isn’t pulling back like most of those stocks. It’s been sideways since the beginning of May but USB isn’t giving up previous gains. It should forge higher in the quarters ahead as the environment continues to be excellent for banks. BUY

USB-060721

Next ex-div date: June 30, 2021 est.

Next ex-div date: June 30, 2021 est.

Rating change “HOLD” to “BUY”
Valero Energy Corp. (VLO – yield 4.7%) – After consolidating for several months following a huge surge earlier in the year, this refiner stock is moving higher again and just made a new post-pandemic high. I don’t think energy is done yet and this stock is still well below the pre-pandemic high, and the environment wasn’t great then. It’s a simple story. Demand for gasoline and diesel and other refined products are soaring in the recovery and margins are rising. The company should have a favorable environment for several more quarters at least. BUY

VLO-060721

Next ex-div date: August 14, 2021 est.

Next ex-div date: August 14, 2021 est.

Safe Income Tier

CDIpyramidSafe

The Safe Income tier of our portfolio holds long-term positions in high-quality stocks and other investments that generate steady income with minimal volatility and low risk. These positions are appropriate for all investors, but are meant to be held for the long term, primarily for income—don’t buy these thinking you’ll double your money in a year.

Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 1.8%) – This short-term bond fund is a safe port. The market has had a huge run since the lows of the pandemic. You never know the next turn it will take. This fund gives you diversification and peace of mind while getting a yield that’s decent for safe money, by today’s standards. HOLD

BSCL-060721

Next ex-div date; June 20, 2021 est.

Next ex-div date; June 20, 2021 est.

Invesco Preferred ETF (PGX – yield 5.0%) – After falling during the pandemic, this preferred stock ETF has recovered and is back near the pre-pandemic high. This preferred stock ETF is much less volatile than the stock market while providing a big yield. It also adds diversification as preferred stock performance is historically not correlated to the stock and bond markets. HOLD

PGX-060721

Next ex-div date: June 22, 2021 est.

Next ex-div date: June 22, 2021 est.

NextEra Energy (NEE – yield 2.1%) – This combination regulated and alternative energy utility had been adored by investors for years, until recently. NEE ran out of gas in late January, then recovered and fell back again. But things haven’t changed fundamentally. The company continues to grow earnings at a high clip as the alternative energy business become more profitable. Plus, the environment ahead will likely be even better for NEE than before as the new administration showers clean energy companies with subsidies and tax breaks and other goodies. It’s also a high-growth sector that should get more attention. BUY

NEE-060721

Next ex-div date: August 25, 2021 est.

Xcel Energy (XEL – yield 2.6%) – This smaller and lesser-known alternative energy utility may be moving ahead of NEE. XEL pulled back a lot at the beginning of the year but has since recovered, although it’s still below the level of early November. Alternative energy has gone out of favor at this juncture of the recovery as other plays are seen as having a better near-term story. But a high-growth utility and a conservative way to play the clean energy phenomenon will find favor with investors again before long. BUY

XEL-060721

Next ex-div date: June 14, 2021

Next ex-div date: June 14, 2021

Dividend Calendar
Ex-Dividend Dates are in RED and italics. Dividend Payments Dates are in GREEN. Confirmed dates are in bold, all other dates are estimated. See the Guide to Cabot Dividend Investor for an explanation of how dates estimated.

CDI 621 June Calendar
CDI 621 July Calendar


The next Cabot Dividend Investor issue will be published on July 14, 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
800-326-8826 | support@cabotwealth.com | CabotWealth.com

Copyright © 2021. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Performance: Subscribers should apply loss limits based on their own personal purchase prices.

Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.