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[00:00:01] Hello my name is Tom Hutchinson and I am the chief analyst for Cabot Dividend Investor taking over for Chloe at the end of the year. I’ve introduced myself in a couple of issues and updates. But now I’m coming to you in a different way. By voice, it helps you get to know me a little better. Mix it up a little bit. And I I hope you like it and find it valuable. I have been in the business for a long long time— decades. I’ve worked for major Wall Street banks on exchanges. The part of my history I want to bring up to you is, that makes me a little different, is that I was a financial adviser for many years and the recommendations I made to people, they bought and I was accountable for them. I worked out income portfolios for retirees, investment portfolios for a lot of people and was accountable to them. I had to go to their house and go through the results often with their families and everything else so I understand that it’s real and that your real and your not just some fictitious being in the digital universe.

[00:01:28] You’re a real person and these investments affect you and I always keep that sharply in mind and anything I recommend. Now I want to talk a little bit about this market. It’s a crazy market. It’s been bad.

[00:01:46] I mean it’s the worst selloff since 2011. Actually the Christmas Eve lows, the market was down about 20 percent, a little shy of it, on a closing basis.

[00:01:59] And I want to talk to you generally about down markets. Down markets are healthy and normal and they’ve always happened and they always will. The important thing about investing is when you commit money into the stock market you have to have a fairly long term timeframe, five to 10 years, and then you’re pretty safe and if it’s money you’re going to need in the short term you’ve got to be safer with it because who knows where the market could be in a year. But the thing to remember about these down markets is they’re not the end of the world. In fact historically they’re the best time to buy. We’re usually, I think since 1926, we’re in a bull market eighty five percent of the time. And the market goes much higher in a bull market than it goes lower in a bear market. They’re really the aberration. And it works it out. It makes it that stocks don’t get too expensive.

[00:03:10] It washes out the excesses in the cycle and really just sets you up for the next bull market. And if you can look at selloffs as basically an opportunity for the longer term you’d be in pretty good shape. I want to share one thing with you that let’s say you invested, and invested just in the market index, 10 years ago today. It would have been January of 2009 smack dab in the middle of the financial crisis and months away from the market lows—the market would fall another 2000 points between now and March 9th.

[00:03:51] But here’s the thing.

[00:03:54] If you invested 10 years ago today you would have averaged over 12 percent per year return on that investment. That’s a pretty good return. Much much higher than the historical market averages which are like 7 percent and you still were a long way from the bottom. The point is, you know, if you have a longer term horizon there’s no point in threading the needle if you buy things at a good price and hold them they’re probably going to do quite well for you.

[00:04:29] Down markets are where you can really step up and make a difference in your future wealth. And I just want you to bear that in mind and not freak out because the markets selling off and I just want to say a couple words about the market right now. We’ve been rallying for a while now. As a matter of fact since the Christmas Eve lows the market is up, the indexes are up, about 10 percent. That’s a pretty big move in a short amount of time.

[00:05:02] And I think there’s a good reason for it. As I mentioned in other issues and updates I think things got overdone the market was pricing in a recession that’s really nowhere in sight and the selling got overdone. Now it’s bouncing back a little bit when people say hey you know there’s no recession here. So all of a sudden they start buying again.

[00:05:26] However, however, I will add a word of caution to this current market. I don’t know that we’re out of the woods yet at all. Yeah we’re a lot higher than we were a Christmas Eve but the markets got a lot of work to do to recover from the sell off we’ve just had and it hasn’t done it yet. And investors are easily scared in this market. It doesn’t take much to set them running for the exits again. One little snippet of bad news. Any reason to become pessimistic they’ll take. So I don’t know that the selling is done. I I believe will rally into the year. I don’t know that the selling that we’re quite out of the woods yet. So with that in mind, right now I’m opting to be a little more defensive I’m favoring the more defensive recession resistant plays as opposed to buying cyclical things here, hoping that it jumps up, because I’m not entirely convinced yet. And that’s where we are at the market at this point. Long term and short term. Now I just want to run through a couple of the portfolio positions and just do a brief comment on each one of them. In the high yield tier Community Health Trusts now yielding about five point six percent.

[00:06:56] This is a REIT that owns healthcare properties it’s good for a couple of reasons REITs are good right now because they’re defensive.

[00:07:05] They pay a high dividend higher than than regular stocks because of a tax break and the market has been kind to REITs during the recent tumble.

[00:07:18] And also it’s in health care which is the best place to be. Health care is the best industry to be in because you’ve got growth with the aging population and defense because people get sick no matter what. So this REIT has its hands in both— it’s outperformrd the market for the last three months/six months/one year period. And it’s a nice stock to own here and that’s buy rated right now.

[00:07:46] General Motors, that, I have a hold on that. I like General Motors it’s much better company than you remember from years past. Who was getting their butts kicked by the Japanese financial mass. It’s a much better company now. They’re financially solid they’ve got great cars. The market hasn’t embraced it yet and I don’t think it will in this cycle.

[00:08:13] Meaning you know maybe it’ll have its heyday on the other side of the next recession.

[00:08:19] However I think as the market will still trend higher from here, this stock has been oversold and I think you’d get a nice bounce back in the stock in the months ahead. And you’re already starting to. Stag industries they own. It’s a REIT that owns industrial properties and all the things that apply to REITs about the other one apply to this one. It pays a nice dividend, five point eight percent. It invests in industrial properties which are in short supply right now and it’s got a nice niche it doesn’t go for the very high end best industrial properties to have it goes for the next tier, where they can get things cheaper and they know how to operate in their market. They do a very good job of it and the stock’s been an outperformer. The only word of caution I will add is that being in the industrial sector makes it a little more cyclical than its peers. So if the market gets ugly again if we start to veer toward a recession at some point I may take profits here.

[00:09:31] Dividend growth tier

Altria, buy rated. Altria has a phenomenal track record. I mean it’s one of the best income stocks on the market to own had a bad year. Had a bad year because cigarette volumes are falling more than usual and the regulators are really on the prowl. The volumes fell, the volumes have been falling 4 to, 3 to 4 percent a year. Just to give you an idea since 2009 cigarette smoking has virtually halved in this country yet over those 10 years Altria stock has averaged about 19 percent a year. So it does just fine even in a shrinking market causing compensate with higher prices and ancillary businesses. Also it’s really set up to. It’s really invested for growth. It’s invested a little over 14 billion dollars in marijuana company Cronos and also e-cigarette company Juul. These are big growth markets. It will take time to see how that filters out and the market will accept the growth and realize it. But in the meantime you have a stock that’s really beaten up here near five year low paying a six and a half percent dividend and I’m comfortable hanging on to that one in this market.

[00:10:56] American Express is a hold. The credit card business is a good business. Only not when the economy is going south. As we veer toward recession this will not be one to own. Since we’re not doing that in the market’s bouncing back I’m holding it.

[00:11:11] CMA is also a hold. Market volatility. That’s what this company loves. It runs exchanges that trade derivatives the more volatile the market is the more the cash register rings at this place. It’s a great stock to own and in a rough market. Now should the volatility wane in the future we might look to take some profits here.

[00:11:38] And now to the safe income tier. The two bond funds that we have, Invesco Bullett shares 2019 corporate bond and 2021 corporate bond. Both safe places to be. Short term investment grade bonds, you’re not getting a great yield but you’re not taking a lot of risk and it’s a safe port in a storm. So I’m continuing to to buy them for money that you want to earn a decent return but be out of the market.

[00:12:09] Con Ed. I’m changing the rating on Con Ed from a buy to a hold. And the reason is that performance has been lousy and I’m tired of it.

[00:12:21] It’s a good company. They’re not too overpriced, pay good solid yield, but it’s underperformed its peers. Over the past year and in the recent tumult. This was Con Edison’s time to shine and it flickered. So a hold for now.

[00:12:42] Ecolab is also rated a hold. Water treatment and specialty chemical company. It’s outperformed both its peers in the market and the recent selloff. It’s been a little bit weaker of late as the market has kind of turned on some of the defensive stocks. But I think it’s still a hold while the market still crazy like this.

[00:13:06] Hormel Foods. This is a hold as well. It’s outperformed the market again through all the ugliness. Good safe stock. It’s actually up 16 percent over the past year and about four and a half percent over the last three months. That’s solid performance in a down market. The outperformance has been less brilliant recently because like I said defensive stocks have not been doing as well so it’s a hold for now.

[00:13:34] The Invesco preferred ETF. That’s rated a hold for now I like preferred stocks. You diversify out of the stock market and the bond market and get a nice high yield about six point one percent. It’s a good place to be but it hasn’t behaved very well this year. I’ve been very disappointed. The market’s been treating it like a junk bond fund and it’s not. But it has been behaving very well in the past couple of weeks. So it’s still a hold for now.

[00:14:05] McCormick is a hold. This food company, what I like about food companies is they’re very defensive. We had a bad year in the market. What did McCormick do? It posted a 39 percent return. That’s seriously coming through as a safe stock in a bad market. It’s cooled off a little bit lately but it should remain an out performer as long as the market stays nasty, that’s a hold rating.

[00:14:37] NextEra Energy, rated buy. And you know the utility sector is obviously a good defensive sector and it was the best performing sector over the past year. Utilities and health care were the only sectors with positive returns for 2018.

[00:14:57] Now I will caution you the good utilities have had a good run of it. So that makes NextEra near it’s, closer to its 52 week high than low, it’s not that cheap in a market that’s been beaten up. So I’m going to keep my eye on how the sector does. I like NextEra in particular. But I’m also watching the utilities sector make sure they’re not due for a bout of under performance.

[00:15:27] Then United Health Group is rated a buy. This is the largestU.S. health insurer and they’re going to report earnings next Tuesday. They’re expected to grow nicely earnings growth of 24 percent, revenue growth of 11 percent.

[00:15:45] And you know earnings have been pretty spectacular and grown in an average of about 20 percent a year over the past five years. And they are expected to grow at 15-16 percent over the next five. Good recession resistant company that should be an ideal holding going forward and there’s less legislation risk than normal with the Democrats taking over the house because there’s virtually no chance of a repeal of Obamacare.

[00:16:14] And finally utility Xcel Energy it’s a solid utility that has outperformed in a troubled market. It’s had some good solid returns. I don’t like it as much as NextEra. I don’t think it’s quite as good a company. So for new money I would really favor that one. That said if you own it already I would by all means hold on to it. I would just, I mean it it’s kind of it does the same thing not quite as well. So if I was putting new money to work I would go toward NextEra at this particular point.

[00:17:03] That’s all. And thank you for listening. As always I will be in regular touch with you about the market and about your holdings and please if you have any questions don’t hesitate to e-mail me at tom@cabotwealth.com. Thanks and have a great day.

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