Cabot Income Advisor 521 - Cabot Wealth Network

Cabot Income Advisor 521

In This Issue

  • Featured Action

    ONEOK Inc. (OKE)

  • Portfolio Updates

    AGNC Investment Corp. (AGNC)
    Brookfield Infrastructure Partners (BIP)
    Digital Realty Trust, Inc. (DLR)
    Enterprise Product Partners (EPD)
    KKR & Co. (KKR)
    NextEra Energy Inc (NEE)
    Qualcomm (QCOM)
    U.S. Bancorp (USB)

  • Income Calendar

Stuck in Neutral
It looks like this relentless bull market is finally stalling out. The market isn’t correcting, or really selling off in any substantial way. It has just stopped moving higher, for now. Given the returns in the past year and recent months, the market had to take a break. That pace couldn’t last.

Inflation seems to be all pundits can talk about these days. Every time the market goes down it’s because of “inflation jitters.” Every other article in financial press is about inflation. What’s the big deal?

We are in an unprecedented situation. The economy endured a self-induced crash, but the shackles are coming off and we are seeing the fastest GDP growth in many decades. The unusual situation is causing some displacement. Supply problems are popping up. There aren’t enough workers or houses or computer chips to keep up with soaring demand. A booming economy with trillions in stimulus chasing limited supply is causing inflation.

There’s some fear that higher prices will increase cost and lower profits of some growth companies. But the bigger issue is that supply constraints could hamper that booming growth that the market has already factored in. The market also worries about the Fed. The Fed could spoil the party by raising rates and curtailing bond purchases to combat inflation.

But the fears are probably unfounded. There are bound to be some side effects from an economy that grows at 10%. The supply issues will likely work themselves out over the rest of the year. If supplies limit growth in the near term, the higher growth will probably last longer as the economy makes up for it down the road.

The market always worries about the Fed. But I would be surprised if the Fed raised rates anytime soon. The Central Bank isn’t as erratic as the market and operates on their own time. I don’t see any action coming until at least late this year.

Stocks had to stop going up at some point, or at least take a breather. Pundits always have to think of some clever reason why the market goes down. If it wasn’t inflation, it would be something else. But a break in the rally was inevitable. And it’s healthy. It’s also highly encouraging that the market isn’t really pulling back.

What to Do Now
Technology stocks have been under pressure. The tech-heavy Nasdaq index is still below the highs of early February. The sector officially corrected 10% in February and is now about 4% below the all-time high. That’s a pretty lame selloff for a sector that had been red hot for the last year.

Some are blaming inflation for the absence of another technology rally. That’s silly. I guess because the fastest economic growth in decades is causing a little bit of inflation we’re not in the midst of a technological revolution anymore. The sector needed a break. But at the end of the day, technology is where the long-term growth is. And investors will come running back before long.

It’s a good time to purchase recent portfolio addition Qualcomm (QCOM). The company posted an amazing quarter, and it should continue to benefit mightily from 5G. It may still bounce around for a while, but the price should be a lot higher by the end of the year.

A market like this doesn’t tend to provide good call-writing opportunities. We wrote calls on three positions when the market was stronger. But now, the better opportunity is in accumulating stocks. Several other portfolio positions have not moved of late and are still in the buy range including Digital Realty Trust (DLR), NextEra Energy (NEE), and Enterprise Product Partners (EPD).

Stock prices may be stuck in mud for the time being, but there are some fantastic income opportunities out there. Many high-dividend stocks are still well below pre-pandemic prices and offer some of the highest yields in a decade. I highlight a phenomenal stock below with a sky-high yield and a price that’s trending higher.

Monthly Recap
April 28
Sell KKR June 18 $55 calls at $2.50 or better
Sell USB June 18 $57.50 calls at $2.50 or better

May 4th
Buy Qualcomm stock (QCOM) – $134.12

May 26th
Buy ONEOK stock (OKE) 

Featured Actions

It’s easy to get a sense that the party is over. The market is leveling off after a record year and a huge spike in the last several months. That pace couldn’t last. Sure, there’s a likely booming economy ahead in the next several quarters. But how much is already priced into the market?

The easy high return for stocks may be over, but the party is still going strong for high yields. You can still get safe, high yields that haven’t been around in a decade. Some of the highest yields on the market can be found in the energy sector.

Sure, the energy sector has been red hot. The Energy Select Sector SPDR Fund (XLE) has soared a staggering 86% since November. But, as impressive as the energy rally has been, it’s been uneven.

Midstream energy stocks have lagged the sector. Midstream is used to describe the middle phase of the three general phases of oil and gas industry operations. Upstream involves exploration and production. Downstream includes refining and sales to end users. Midstream includes the piping, processing and storage.

Midstream stocks didn’t rally as much as the overall energy sector in the past several months. Other stocks got hot because they have more exposure to rising commodity prices. Most midstream stocks didn’t get overextended in recent months and are still selling at compelling valuations, well below the pre-pandemic highs.

Stocks in the midstream space also have the highest yields. Prices in the sector are trending higher ahead of a booming economy while still offering some of the best yield opportunities in a long time.

Yield 7.0%
ONEOK is a large U.S. midstream energy company specializing in natural gas. It owns one of the nation’s premier natural gas liquids (NGLs) systems and also has an extensive network of natural gas gathering, processing, storage and transportation assets. A whopping 10% of U.S. natural gas production uses ONEOK’s infrastructure.

There are a few things that really stand out about this midstream energy company. Unlike most of its peers, ONEOK is not a Master Limited Partnership. It’s structured as a regular corporation and dividends generate a regular 1099 at tax time, and not those annoying K1s.

Also, that 7% yield is for real. The company actually raised the payout during the pandemic and has maintained or grown the dividend for 25 years. Not only is the dividend rock solid but it grows like crazy. ONEOK has grown the payout by an average of 54% per year over the last five years.

It gets reliable, 85% fee-based, revenues from its superior assets. It operates in the very best energy segments located in the high-growth shale regions. Natural gas is a rapidly growing fuel source that is much cleaner burning than oil or coal. NGL is by far the fastest growing fossil fuel source.

In one of the worst years ever for the energy industry, ONEOK’s NGL volumes continued to grow anyway, up 20% from last year’s first quarter. Natural gas transportation volumes also continued to grow last year.

Like most energy stocks, OKE got clobbered during the pandemic, falling more than 75%. But the stock has since been making up for lost time. It’s up about 100% since early November and 43% YTD. But despite the recent surge OKE is still 30% below the pre-pandemic high.

That’s a huge bargain because ONEOK actually grew earnings 6% in 2020, during one of the worst energy markets ever. It also estimates double digit earnings growth for this year. OKE is still 30% below the pre pandemic levels with higher earnings ahead of a likely huge energy recovery later this year.

The stock can move too and therefore generates some hefty call premiums. OKE is clearly trending higher with a safe high yield at a bargain price ahead a booming economy.

Security type: Common stock
Industry: Energy infrastructure
Price: $53.35
52-week range: $23.28- $53.96
Yield: 7.04%
Profile: ONEOK is a large U.S. midstream energy company with a vast array of natural gas and natural gas liquids assets.


  • NGL and natural gas volumes are in a secular growth trend.
  • Recent expansions will provide the ability to grow earnings without investing more.
  • The stock sells at a cheap valuation with good momentum.


  • The company has a fairly high level of debt and payments will hold back earnings growth.
  • OKE has a high beta of 1.96 and is not a good down-market stock.


Portfolio Updates
Open Recommendations Ticker Symbol Entry Date Entry Price Price on
Buy at or
Under Price
Yield Total Return
AGNC Investment Corp. AGNC 01/13/21 15.52 18.58 17.00 7.75% 20.76%
Brookfield Infrastructure BIP 01/13/21 50.63 54.04 53.00 3.79% 6.47%
Digital Realty Trust DLR 1/27/21 149.17 151.22 155.00 3.07% 0.22%
NextEra Energy, inc. NEE 2/24/21 73.76 74.03 80.00 2.08% -2.01%
Enterprise Product Partners EPD 3/17/21 23.21 23.91 25.00 7.53% 6.51%
U.S. Bancorp USB 3/24/21 53.47 60.42 55.00 2.78% 17.22%
KKR & Co. KKR 3/24/21 47.98 55.32 50.00 1.05% 15.85%
Qualcomm Inc. QCOM 5/5/21 134.65 132.91 140.00 2.05% -3.60%
ONEOK, Inc. OKE 54.14 60.00 6.91%
Open Recommendations Ticker Symbol Intial
Entry Date Price on
Buy Under or
Sell Down To
Total Return
AGNC June 18 $17 call AGNC210618C0017000 Sell 4/13/21 0.50 1.59 0.50 3.20%
KKR June 18 $55 call KKR210618C00055000 Sell 4/28/21 3.00 1.55 2.50 6.25%
USB June 18 $57.50 call USB210618C00057500 Sell 4/28/21 2.80 3.52 2.50 5.24%
Security Ticker Symbol Action Entry Date Entry
Sale Date Sale Price Total Return
Innovative Industrial Props. IIPR Called 6/2/20 87.82 9/18/20 100.00 15.08%
Qualcomm QCOM Called 6/24/20 89.14 9/18/20 95.00 7.30%
U.S. Bancorp USB Called 7/22/20 36.26 9/18/20 38.00 3.42%
Brookfield Infras. Ptnrs. BIP Called 6/24/20 41.92 10/16/20 45.00 8.49%
Starbucks Corp. SBUX Called 8/26/20 82.41 10/16/20 88.00 6.18%
Visa Corporation V Called 9/22/20 200.56 11/20/20 200.00 0.00%
AbbVie Inc. ABBV Called 6/2/20 91.04 12/31/20 100.00 12.43%
Enterprise Prod. Prtnrs. EPD Called 6/24/20 18.14 1/15/21 20.00 15.16%
Altria Group MO Called 6/2/20 39.66 1/15/21 40.00 7.31%
U.S. Bancorp USB Called 11/25/20 44.68 1/15/21 45.00 1.66%
B&G Foods Inc, BGS Called 10/28/20 26.79 2/19/21 28.00 4.42%
Valero Energy Inc. VLO Called 8/26/20 53.70 3/26/21 60.00 11.73%
Chevron Corp. CVX Called 12/23/20 85.69 4/1/21 96.00 12.95%
Security In/out money Sell Date Sell Price Exp. Date $ Return Total % Return
IIPR Jul 17 $95 call out-of money 6/3/20 3.00 7/17/20 3.00 3.40%
MO Jul 31 $42 call out-of-money 6/17/20 1.60 7/31/20 1.60 4.03%
ABBV Sep 18 $100 call out-of-money 7/15/20 4.60 9/18/20 4.60 5.05%
IIPR Sep 18 $100 call in-the-money 7/22/20 5.00 9/18/20 5.00 5.69%
QCOM Sep 18 $95 call in-the-money 6/24/20 4.30 9/18/20 4.30 4.82%
USB Sep 18 $37.50 call in-the-money 7/22/20 2.00 9/18/20 2.00 5.52%
BIP Oct 16 $45 call in-the-money 9/2/20 1.95 10/16/20 1.95 4.65%
SBUX Oct 16 $87.50 call in-the-money 10/16/20 3.30 10/16/20 3.30 4.00%
V Nov 20 $200 call in-the-money 9/22/20 10.00 11/20/20 10.00 4.99%
ABBV Dec 31 $100 call in-the-money 11/18/20 3.30 12/31/20 3.30 3.62%
EPD Jan 15 $20 call in-the-money 11/23/20 0.80 1/15/21 0.80 4.41%
MO Jan 15 $40 call in-the-money 11/25/20 1.90 1/15/21 1.90 4.79%
USB Jan 15 $45 call in-the-money 11/25/20 2.00 1/15/21 2.00 4.48%
BGS Feb 19 $27.50 call in-the-money 12/11/20 2.40 2/19/21 2.40 8.96%
VLO Mar 26 $60 call in-the-money 2/10/21 6.50 3/26/21 6.50 12.10%
CVX Apr 1 $95.50 call in-the-money 2/19/21 4.30 4/1/21 4.30 5.02%

AGNC Investment Corp. (AGNC)
Yield 7.7%
It’s the Energizer mortgage REIT. It just keeps going and going and going. It’s not a rapid ascent. AGNC has nothing on a hot tech stock. But the appreciation, as a flattering complement to that big fat yield, is steady and unmistakable. I don’t love mortgage REITs as long-term investments. But they have their moments. And this is one of them. HOLD


Brookfield Infrastructure Partners (BIP)
Yield 3.8%
There’s a lot to like about this infrastructure partnership. But first, let’s talk about the negatives. BIP hasn’t gone anywhere since January. It has slightly underperformed the S&P 500 through the pandemic recovery. It moves so slowly it’s like a kid growing, only people who haven’t seen the stock in a long time realize it’s gone higher.

But the company has an incredibly reliable business with growing earnings in an increasingly dicey market. It’s basically been a market performer with less volatility and a nice yield. In another life where we’re not so spoiled by the bull market, that’s pretty sweet. I like BIP more than ever now that the bull market is showing signs of running out of gas. BUY


Digital Realty Trust, Inc. (DLR)
Yield 3.1%
This stock was down. But it’s never down and out for very long. After enduring the pandemic bear market extremely well, it proceeded to go nowhere for a year. But it’s a great REIT with properties that will continue to be in high demand just as surely as technology will continue to proliferate. The market is moody. And it appears to be coming back around to a DLR mood again. The stock has had a nice move since March and I’m expecting more. I’ll look to write a call after the next thrust higher. BUY


Enterprise Product Partners (EPD)
Yield 7.5%
The market doesn’t like this stock. But I do. I’m confused by the market calculus that has this American midstream energy superstar 17% below the pre-pandemic price with higher earnings and safe 7.5% yield ahead much more profitable times. But even if the market never really comes around, you get a massive yield that’s safe with a stock price that is certainly trending higher. Let’s take what they’re giving for now and look to write calls when investors wise up. BUY


KKR & Co. (KKR)
Yield 1.0%
KKR is divine. It’s been an unbelievable performer in years past in an inferior environment to the one we’re likely heading into. Financial stocks are hot and KKR is the best of the best with a huge presence in the rapidly growing alternative investment business. But the stock needs to take a break. After soaring 56% from late January to early May, KKR appears to be consolidating. It looks like we may have timed the calls just right. We may be able to sneak in and milk a high income while this stock catches its breath. HOLD


NextEra Energy  Inc, (NEE)
Yield 2.1%
I don’t get this one either. This combination regulated and alternative energy utility had been adored by investors for years, until now. NEE ran out of gas in late January and has been floundering since. Nothing has changed fundamentally. The company is kicking butt. And 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. Oh well. NEE should get a move on at some point. BUY


Qualcomm (QCOM)
Yield 2.1%
The technology sector has been under pressure lately. But it’s not because of the stylish inflation excuse. Forget this short-term noise. When the latest headlines give way to something else, technology will still be where all the growth is. Qualcomm is killing it with its 5G chip and business is getting better. It may bang around for a few more weeks or even months. But let’s accumulate the stock while the Wall Street metrosexuals haggle with the market fashion police. BUY


U.S. Bancorp (USB)
Yield 2.8%
This best-in-class regional banking giant stock has been a superstar since early February. It’s up over 40% since then. USB recently eclipsed the pre-pandemic high. It could run into some resistance here and take a breather, but I’m not sure. The S&P 500 eclipsed the pre-pandemic high last summer and never looked back. We wrote the calls at a strike price 3 dollars cheaper than the current price. We’re set up to get a great total return if the stock closes above that price at expiration. If the stock pulls back by then and we keep it, we’ll write more calls and get more income in the future. HOLD


Existing Call Trades
Sell AGNC June 18th $17 call at $0.50 or better
The positive earnings report as well as the strong economy and likely inflation has helped this stock move higher since we wrote the calls. The premium is priced well above the target level at 1.59. Many of the outstanding calls are being exercised early as investors find it advantageous to acquire the stock and collect the monthly dividend. Many calls are being exercised early. It seems to be happening a lot in the case of AGNC because of the monthly dividend.

Sell KKR June 18 $55 calls at $3.00 or better
We wrote these calls at a high premium after a huge move higher in the stock. KKR may have topped out for the time being, but we’ll see. The calls are selling below the target at 1.55. But you’re in a great position if you wrote the 3 calls. You’ll either get a great total return or get a high income with a chance to write more calls in the future.

Sell USB June 18 $57.50 calls at $2.80 or better
USB has moved higher since we wrote the calls, and the premiums are way above the target price at 3.52. This stock seems to be defying the market and the recent turbulence. It’s right around the pre-pandemic highs and could hit some resistance here after a nice run higher. It’s still a good time to write these calls if you haven’t done so already. The premiums are high and there is a fair chance that the stock will pull back over the next month.

Income 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 Income Advisor for an explanation of how dates are estimated.
CIA 521 Calendar - June

CIA 521 Calendar - July

The next Cabot Income Advisor issue will be published on June 23, 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
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