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Profit from Peak Interest Rates and Artificial Intelligence
The business of investing is always uncertain. No one ever really knows what the future holds. But that doesn’t stop prognosticators, especially at the beginning of a new year.
Most predictions about the overall market aren’t very clever. They almost always tend to expect more of how the last year ended in the new year. In this case, that would be great. But the recent track record has been shoddy. Most expected more bear market misery in 2023, at least in the first part. That didn’t happen. The predictions for 2022 were mostly bullish after a strong 2021; that didn’t happen either.
Of course, most years are higher for the market, so that’s always a fair bet. But anything is possible. There’s a lot of reason for optimism. Inflation is way down, the Fed is done hiking rates, and the economy is nowhere near recession. It looks like we will get through this rate hiking cycle without the economic pain. The S&P made a new all-time high and the rally has broadened out.
I believe the good news will prevail in 2024. But you never know. The recession that had been expected might be just a little further down the road and will hit in 2024. Inflation seems to be licked, but maybe not. It could reignite and turn the Fed more hawkish. There’s also geopolitical risk with these wars going on. And it promises to be a particularly funky election year too.
Forget about trying to predict the direction of the overall market. However, certain aspects of the current environment and established trends are much more bankable. For example, it is highly likely that interest rates have peaked. Sure, rates could bounce higher than they are now. But that 5% peak level on the 10-year Treasury is unlikely to be eclipsed, at least in this cycle. The situation would have to be completely reversed for that to happen. It’s a good bet that we have already seen the highest interest rates of this cycle.
Artificial intelligence is here to stay. Businesses must spend on it not only for competitive advantage but as a matter of survival. The new technology will continue to be a strong growth catalyst for technology stocks. And the trend will continue regardless of what the Fed does, or the state of the economy, or who is elected President.
Several of the very best defensive dividend stocks on the market have suffered a miserable two years as interest rates trended higher. But that move higher has peaked and may even be reversing. Meanwhile, these stocks, which have strong track records of market outperformance, are at historically cheap valuations, with recent upward momentum, ahead of a likely slowing economy.
In this issue, I highlight a fantastic dividend stock whose long record of strong performance has been interrupted these last two years. It’s also a company that focuses on technology and will surely benefit from the proliferation of AI in the years ahead. The timing for this stock should be outstanding.
What to Do Now
After a strong finish to 2023, the S&P 500 is up in January as well. The rally has slowed but it’s still going, albeit in a different way.
Technology has been the star sector so far in January and is driving the overall market higher. Those stocks are hot again, and the sector is up nearly 5% in the first three weeks of the year. It’s not surprising. I expect this to be another banner year for technology as artificial intelligence spending provides another strong growth catalyst for many companies.
But the interest rate trade, which was so hot at the end of last year, has fizzled out this year so far. In fact, defensive dividend sectors in REITs and utilities, which soared in the last two months of last year, are both down over 3% so far in January. But this is likely just a hiccup and that trade isn’t nearly over.
In the euphoria of the rally late last year, investors had come to expect both Fed rate cuts and a soft landing. But the Fed has been pushing back on that notion, indicating that if the economy remains strong, rate cuts are not coming anytime soon. The unpleasant noises from the Fed disappointed overly optimistic investors and put the kibosh on the rally in interest rate sensitive stocks, for now.
But don’t be disheartened by the bad start. Interest rates have likely already seen the highest levels of this cycle. And the bias should be lower from here between now and the end of the year. Many of the defensive stocks in the portfolio are still trading at historically low valuations, despite the late-year surge. Plus, the main risk in 2024 is a slowing economy, where the relative performance of these stocks thrives.
There are changing tides over the course of a year. The defensive portfolio stocks still have the right stuff for 2024, even though it doesn’t look that way so far. The sour start to the year has also provided an excellent entry point for these defensive stocks.
Two portfolio stocks were called last Friday, as call options sold against the positions expired for Digital Realty Trust (DLR) and Intel (INTC). Both stocks have exposure to technology and the AI catalyst. It’s somewhat disappointing to have strong-performing stocks called away. But markets change and those stock prices may come down again.
It’s also the goal of this newsletter to provide a high income when and where the opportunity arises. Both those positions provided a high current income as well as a solid total return. And there will be more such opportunities down the road.
Monthly Recap
January 10th
SOLD ABBV March 15th $160 calls at $7.00 or better
January 19th
DLR January 19th $135 calls at $6.00 – Expired
Digital Realty Trust, Inc. (DLR) stock – Called
INTC January 19th $42.50 calls at $3.50 – Expired
Intel Corporation (INTC) stock – Called
January 23rd
Buy American Tower Corporation (AMT)
Featured Actions: Buy American Tower Corporation (AMT)
Yield: 3.3%
American Tower is a Real Estate Investment Trust (REIT) that owns, operates, and develops an extensive portfolio of cell towers and other communications assets worldwide. It’s a mobile communications infrastructure powerhouse with over 220,000 cell towers in 25 countries on six different continents, as well as 28 data centers in the U.S. American Tower is headquartered in Boston, has been in business more than 28 years, and has roughly $96 billion in market cap.
Cell towers are fantastic assets to own. Cell towers are those weird-looking polls you see around with boxy antennas that send and receive signals to and from cell phones and other mobile devices. They are what provide the Wi-Fi for mobile network service. Cell phones can’t work without them.
Telecomm companies lease these towers out rather than going to the added expense of building or acquiring their own. And demand for mobile data continues to grow. Cell phones continue to become more advanced as do a slew of newly enabled technologies for cars and other devices that connect to the internet. There are rapidly growing applications for video conferences, cloud services and hybrid working scenarios.
The more advanced 5G infrastructure and the artificial intelligence applications it enables are fueling the traffic growth. According to research from telecom company Telefonaktiebolaget LM Ericsson (ERIC), average mobile data usage per smartphone is set to rise from 21 GB in 2023 to 56 GB in 2029. 5G’s share of mobile data traffic is forecast to grow by 76% in the next six years. And total mobile data traffic is estimated to grow by a factor of around 3X between 2023 and 2029.
As demand for mobile data grows, so will demand for wireless infrastructure and American Tower’s properties.
American Tower’s customers include mobile network operators, multinational telecommunications companies, media, and broadband providers. The largest U.S. customers are Verizon (VZ), AT&T (T), and T-Mobile (TMUS). These reliable customers are signed to long-term leases of five to ten years and the towers have exceptionally low churn rates. Revenues are highly dependable, and the business has automatic growth built in.
Of course, American Tower isn’t the only large REIT specializing in cell tower properties. There is also Crown Castle Inc. (CCI) and SBA Communications Corporation (SBAC). Why chose AMT? The main reason is that American Tower has international exposure to far less saturated emerging markets where mobile and cell phone demand is growing faster.
Of the more than 220,000 towers American Tower owns, only about 40,000 are located in the U.S. Yet, those 40,000 account for a little bit more than half of the revenues because the number of carriers and volume on each tower is much higher in the U.S. But the growth rate will be higher going forward in these far less saturated markets. Here’s a list of the international towers located overseas.
India 75,000
Latin America 50,000
Europe 30,000
Africa 25,000
Why buy it now? The answer is because it’s cheap after two years of poor performance. The total return from the start of 2022 to the end of 2023 was -20%. That performance is despite the fact that American Tower has grown earnings at better than 10% per year on average for the last three years.
AMT suffered along with the REIT sector over the last two years in the rising interest rate environment. It also hurt performance because the strong dollar, largely the result of Fed rate hikes, resulted in lower international revenues after conversion to dollars. But, as mentioned above, interest rates have likely peaked and may trend lower going forward.
Take rising interest rates out of the equation and you have a cheap stock that has moved strongly off the lows with recent upward momentum that still sells 30% below the all-time high despite having higher earnings. AMT is also a stock that had soundly outperformed the market in the five- and ten-year periods prior to 2022, with 204% and 495% returns over those periods respectively.
The Dividend
American Tower currently pays an annual dividend of $6.80 per share, which translates to a 3.3% yield at the current price. Reliable revenues have enabled the company to increase the payout every year for the last 12 years. In the past five years, the dividend has been raised 19 times at an average annual growth rate of 15.4%.
Not only can you count on a rising payout in the future, but the ability to consistently raise the payout is proof of highly dependable operating results at the company. Stocks that consistently grow the dividend over time have proven to be among the very best market performers.
Mobile data demand is not only growing but is also highly defensive. Even if the economy turns south this year, earnings and revenues are unlikely to be adversely affected. AMT also has a beta of just 0.7, which means it is only 70% as volatile as the overall market. It’s a cheap stock that has been out of favor because of conditions that are abating. It has a stellar track record and is due to make up for lost time heading into an environment of likely market outperformance.
American Tower Corporation (AMT)
Security type: Real Estate Investment Trust (REIT)
Sector: Technology
Price: $203
52-week range: $154.58 - $235.57
Yield: 3.3%
Profile: American Tower is a Real Estate Investment Trust (REIT) that owns, operates, and develops an extensive portfolio of cell towers and other communications assets worldwide.
Positives
- Demand for mobile data and its infrastructure is growing.
- Exposure to faster-growing overseas markets should boost growth.
- The stock is cheap and the factors that held a good-performing stock down the past two years are abating.
Risks
- It is possible that inflation reignites and interest rates move higher and push the stock price lower.
- Overseas markets carry much more political risk.
American Tower Corporation (AMT)
Next ex-div date: March 28, 2024, est.
Portfolio Recap
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $164.77 | $150.00 | 3.76% | 18.62% |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $123.35 | $140.00 | 4.12% | -3.84% |
| American Tower Corp. | AMT | 1/23/24 | $203.87 | $220.00 | 3.34% | ||
| Marathon Petroleum Corp. | MPC | 10/24/23 | $149.45 | $152.98 | $155.00 | 2.16% | 3.49% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $57.26 | $65.00 | 3.37% | -24.83% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $151.96 | $130.00 | 2.11% | 19.93% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $56.52 | $62.00 | 5.45% | -2.97% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $33.86 | $38.00 | 5.29% | 3.29% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $59.48 | $65.00 | 3.50% | 4.42% |
Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| ABBV Mar 15th $160 call | ABBV240315C00165000 | Sell | 1/10/24 | $7.00 | $8.55 | $7.00 | 4.94% |
| as of close on 01/19/2024 | |||||||
SOLD STOCKS | |||||||
| Stock | Ticker Symbol | Action | Entry Date | Entry Price | 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 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14/22 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20/23 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 | -38.00% |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 | 8.72% |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 | -31.38% |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 | 9.16% |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 | -13.82% |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 | 9.72% |
| Hess Corporation | HES | Called | 6/6/23 | $132.25 | 10/20/23 | $155 | 17.87% |
| Tractor Supply Company | TSCO | Sold | 9/26/23 | $203.03 | 11/28/23 | $200 | -1.02% |
| Digital Realty Trust | DLR | Called | 7/18/23 | $117.31 | 1/19/24 | $135 | 17.16% |
| Intel Corporation | INTC | Called | 7/27/22 | $40.18 | 1/19/24 | $43 | 9.76% |
| EXPIRED OPTIONS | |||||||
| 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 Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9/1/21 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24/21 | $2.30 | 11/19/21 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20/22 | $11.75 | 9/16/22 | $11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/23 | $12.00 | 5.51% | |
| OKE May 19th $65 call | out-of-money | 4/11/23 | $2.70 | 5/19/23 | $2.70 | 4.43% | |
| V Jun 2 $230 call | out-of-money | 4/21/23 | $10.50 | 6/2/23 | $10.50 | 4.82% | |
| BIPC $45 July 21st call | in-the-money | 5/23/23 | $3.25 | 7/21/23 | $3.25 | 7.66% | |
| V $235 Aug 18th call | in-the-money | 7/11/23 | $9.00 | 8/18/23 | $9.00 | 4.13% | |
| GSL $20 Aug 18th call | out-of-money | 7/11/23 | $1.25 | 8/18/23 | $1.25 | 5.00% | |
| OKE $65 Sep 15 call | in-the-money | 9/15/23 | $3.20 | 7/25/23 | $3.20 | 4.92% | |
| INTC $35 Oct 20th call | out-of-money | 9/8/23 | $3.78 | 10/20/23 | $3.78 | 9.41% | |
| HES $155 Oct 20th call | in-the-money | 9/8/23 | $9.00 | 10/20/23 | $9.00 | 6.81% | |
| DLR $135 Jan 19th call | in-the-money | 11/22/24 | $6.00 | 1/19/24 | $6.00 | 5.11% | |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/24 | $3.50 | 1/19/24 | $3.50 | 8.71% | |
AbbVie Inc. (ABBV)
Yield: 3.8%
ABBV has been bouncing around in a range since hitting a high in April of 2022. It is now at the top of that range and just set a new 52-high this week. The future is bright as AbbVie has one of the best pipelines in the business. But it is still struggling with the Humira patent expiration and is not expected to grow earnings again until next year. The market likes that AbbVie is purchasing biotech company ImmunoGen (IMGN) for $10.1 billion and Cerevel Therapeutics (CERE) for $8.7 billion. Both deals should enhance the already strong pipeline longer term. At some point, investors will look beyond the Humira expiration toward a strong and growing company. But it might not be there yet. ABBV may be near the top of the near-term range and at an excellent level to sell a call. HOLD
AbbVie Inc. (ABBV)
Next ex-div date: April 12, 2024, est.
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.1%
ARE has soared over 40% since the low of late October. But we didn’t miss the boat. The stock is still more than 40% below the all-time high. ARE sold off more than it should have because of its association with office REITs. But it has been among the very best performers of its peers since interest rates peaked. The company also has a highly reliable and growing business that should thrive in any economy. It’s cheap with strong momentum ahead of a period of likely strong performance as interest rates abate. It has leveled off in the past month or so but could have another leg higher before long. BUY
Alexandria Real Estate Equities, Inc. (ARE)
Next ex-div date: March 28, 2024, est.
Marathon Petroleum Corp, (MPC)
Yield: 2.2%
This newly added oil refiner stock sort of bounces around with the energy sector, except better. When energy stocks get hot, MPC gets hotter. When the energy sector is sucking wind, MPC still does good. Even though the energy sector posted a negative return for 2023, MPC returned a solid 30% for the year. While the environment can vary from quarter to quarter, it should remain an overall profitable environment for refiners over the next several years. MPC also has the advantage of spiking higher if there is more trouble in the Middle East and thriving if the economy is stronger than expected. BUY
Marathon Petroleum Corporation (MPC)
Next ex-div date: February 15, 2024, est.
NextEra Energy, Inc. (NEE)
Yield: 3.3%
After a rotten couple of years, NEE has been trending sharply higher since early October. It’s up over 20% from the 52-week low and it looks like we have seen the bottom of this cycle. The clean energy utility delivered solid earnings, and management reiterated previous growth projections and said the company expects to deliver earnings near the top of the expected range through 2026. NextEra reports earnings this week and that should be a positive for the stock. This stock is still very oversold. It had been a market superstar that investors loved because it offered both defense and growth. It will rise again. BUY
NextEra Energy, Inc. (NEE)
Next ex-div date: February 22, 2024, est.
Qualcomm Corp. (QCOM)
Yield: 2.1%
QCOM is catching fire. It’s up about 10% in just the last few days to a new 52-week high and is near the highest level since early 2022. The recent catalyst is that semiconductor companies reporting are confirming that the semiconductor industry could have double-digit growth this year after contracting last year. Leaders like Qualcomm should experience a much higher level of growth than the overall industry. This is a company that will benefit from the AI revolution later than the 2023 movers and shakers. But the revolution will come to mobile devices. Qualcomm is introducing new AI chips for PCs and smartphones that could be big sellers next year. When QCOM moves it can make up for lost time. BUY
Qualcomm Inc. (QCOM)
Next ex-div date: February 28, 2024
Realty Income Corp. (O)
Yield: 5.5%
After a terrible 2023, REITs have come alive again and O is doing even better. Since the market rallied on peak interest rates and the end of October, the sector benchmark Vanguard Real Estate Index Fund (VNQ) is up 22% and O is up more than 27% over the same period. Receding inflation and interest rates remove the main downside catalyst that has been in place for the past two years. And its retail staple properties, and new data center acquisitions, should produce reliable revenue in just about any economy. Hopefully, the earnings report later this month can give it another leg higher. BUY
Realty Income Corporation (O)
Next ex-div date: January 31, 2024
The Williams Companies, Inc. (WMB)
Yield: 5.3%
Midstream energy companies are positioned well for 2024. The high income should be even more valuable as interest rates decline and earnings ae solid during inflation or a slowing economy. Returns have been solid and just what you hope for in a high-dividend stock in a challenging market environment. The natural gas pipeline company has been very bouncy in an upward trend that began more than six months ago. It’s a stable high-yield stock and the company should deliver solid and dependable earnings in just about any economy. It pays a well-supported dividend (with 2.38 times cash flow coverage). Recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. BUY
The Williams Companies, Inc. (WMB)
Next ex-div date: March 8, 2024, est.
Xcel Energy Inc. (XEL)
Yield: 3.5%
Utilities are still remarkably reliable revenue generators in any economy. Alternative energy is still the wave of the future. A combination of safety and growth is still highly desirable. The last two crummy years are not what this stock is about. XEL has been trending higher since the beginning of last month and it’s had a convincing move off the low. This is one of the best utility stocks to own and the recent debauchery may prove to be very temporary. XEL still sells near the lowest levels of the past several years and now has some positive momentum. BUY
Xcel Energy Inc. (XEL)
Next ex-div date: March 27, 2024, est.
Existing Call Trades
DLR January 19th $135 calls at $6.00 – Expired
The stock was called on last Friday’s options expiration as it closed above 135 per share. REITs are desirable as interest rates have finally peaked and most stocks are cheap after the past few years. DLR also has exposure to growing AI spending through its data centers. But the stock had a big move already and may be close to a near-term top. The position provided a strong income and a 22.3% return in just six months.
Call premium: $6.00
Dividends: $2.44
Appreciation: $17.69 ($135 strike price minus $117.31 purchase price)
Total: $26.13 (total return of 22.3% in 6 months)
INTC January 19th $42.50 calls at $3.50 – Expired
Even after a huge move, INTC stayed hot and moved higher. I believe in the future for the company and the stock. It may pull back again and provide a buying opportunity in the next market rough patch. Even though the stock didn’t move much higher from the initial purchase price, it still provided a near 30% return if you sold both the calls.
Call premium: $3.50
Dividends: $1.60
Appreciation: $2.32 ($40.18 purchase price minus $42.50 strike price)
Total: $7.42 (total return of 18.5% in 18 months, and 27.9% if you sold the previous call for $3.78)
Sell ABBV March 15th $160 calls at $7.00 or better
ABBV has been bouncing around in a range since hitting a high in spring of 2022. It is now at the very top echelon of that range. Over time ABBV should easily eclipse the old high and move higher. But it still might have more work to do before it gets there. It was a good time to milk the recent surge for a high income.
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.
The next Cabot Income Advisor issue will be published on February 27, 2024.
