High Income and Growth
It has been a sensational market for most of the year. The S&P 500 was up 14.5% in the first half of the year and was having a great July. In addition, the market rally broadened to include previously underperforming stocks. But the rally is wobbling.
The latest leg of the rally was driven by an improved interest rate outlook prompted by a good inflation number for June. Consensus expectations are now calling for the first Fed rate cut in September and another one by the end of the year. As a result, interest rate-sensitive stocks joined the party.
The S&P spent most of the first half of July setting new highs. But that changed last week. The technology sector sold off on news of new AI chip export restrictions to China. The S&P fell about 2% for the week, giving up most of the gains for July. It may be a blip. It probably is. The market could pick up again where it left off for the rest of the month and beyond. But the market is high, and stocks showed vulnerability to bad headlines.
A flatter or down market going forward makes income more valuable. The cash register continues to ring regardless of short-term market gyrations. At the same time, many income stocks are still cheap, and interest rates are likely to trend lower from here.
Some of the very best income stocks are in the energy sector. Stocks of fossil fuel companies have been neglected in recent years as investors see clean energy as the future. It might be the future but not for a while. The world uses fossil fuels for more than 80% of its energy needs and will likely continue to rely overwhelmingly on gas and oil for decades.
After recent price shocks and other problems in the energy sector, investors are coming around to realizing energy is a strong business that isn’t going anywhere for a long time.
The term “fossil fuels” includes oil, coal, and natural gas. But natural gas is head and shoulders above the others because it is cheaper, more abundant, and much cleaner burning. Natural gas is increasingly seen as a bridge to a clean energy future that can provide stability for the world’s energy needs in the interim while reducing carbon emissions.
In this issue, I highlight one of the best natural gas companies on the market. It is a newly formed company in the business of exporting abundant and cheap American natural gas overseas. It’s big business. In a short time, this company has become one of the world’s biggest natural gas exporters.
What to Do Now
The market has changed for the better since last month’s issue. The big difference is that prior to last month technology was the only thing driving this market higher. The rest of the market had been rather lame. But the improved interest rate outlook ignited a big rally in the previously underperforming interest rate-sensitive stocks.
Since the better-than-expected June CPI number came out on July 9, Alexandria Real Estate Equity (ARE) is up 8%, American Tower (AMT) is up 7%, and Brookfield Infrastructure Partners (BIPC) is up 13%. The year-to-date returns on those same stocks prior to July 9 were -8%, -9% and -2%, respectively.
It seems that the market has changed because risks have changed. The bigger risk to the market is unlikely to be rising inflation and interest rates but rather recession. I don’t think a recession is likely this year, but interest rates are highly likely to trend lower from here, in a good or bad market.
The stocks mentioned above are still cheap despite the recent moves and have room to run after a tough couple of years. They are also more defensive stocks that should fare well if the economy does flounder. Most of the portfolio stocks look strong, but ARE, AMT, and BIPC might be the best buys because there is more ground to make up.
There may be call writing opportunities in several other portfolio stocks in the weeks ahead so watch for the weekly updates and check your email for “Trade Alerts.”
It’s also worth mentioning that the options expired on Qualcomm (QCOM) on Friday without shares being called away. QCOM had pulled back after a recent surge and then it got clobbered with the chip selloff last week. But I expect that stock to regain its footing before long and present yet another call writing opportunity.
Monthly Recap
June 25
Sell NEE SEP 20th $77.50 calls at $4.40 – Removed
NextEra Energy, Inc. (NEE) – Rating change “BUY” to “HOLD”
June 27
SOLD MAIN September 20th $49.40 calls at $2.00 or better
July 2
Sell BIPC Sep 20th $35 calls at $3.00 or better – Remove
July 16
SOLD BIPC Sep 20th $35 calls at $3.00 or better
July 19
QCOM July 19th $200 calls at $12.00 – Expired
July 23
BUY Cheniere Energy Partners, L.P. (CQP)
Featured Actions
BUY Cheniere Energy Partners, L.P. (CQP)
Yield: 7.35%
Cheniere Energy Partners owns and operates the first and largest U.S. liquid natural gas (LNG) export facility, Sabine Pass in Cameron Parish, Louisiana. It also owns regasification facilities and the Creole Trail Pipeline, which connects to several large interstate pipelines throughout the country.
Cheniere Energy Partners is a subsidiary of parent company Cheniere Energy (LNG), which is a recently established position in the Cabot Dividend Investor portfolio. CQP is a Master Limited Partnership (MLP) established to pass on a high level of income to unit holders in the form of distributions. While LNG pays a yield of just 1%, CQP pays 7.35%. The high-income feature is more suitable for this portfolio. CQP owns the Sabine Pass export facility and passes on most of the earnings in the form of income.
Although it only represents a portion of Cheniere Energy, the basic principle is the same. It is just that this portion of the company is structured to provide a high income to unit holders. The growth in liquid natural gas should be strong going forward.
Because of new technologies in horizontal drilling and hydraulic fracturing (fracking), massive supplies of previously irretrievable oil and gas deposits trapped in shale rock formations throughout the country could now be accessed. As a result, this country became the world’s largest producer of natural gas more than a decade ago.
This country was able to produce far more natural gas than it could currently use. At the same time, they are starving for the stuff in other parts of the world, and the gas was dirt cheap here and expensive there. It seemed logical to sell natural gas overseas at a huge profit. But that was easier said than done.
While natural gas can be piped across this continent, you can’t pipe it across the oceans. To export large quantities of natural gas to places like Europe and Asia, gas must be converted to liquid form, put onto tankers, and shipped. But since we didn’t have an abundance of natural gas before, there were no massive liquefaction and export facilities in this country. That’s where Cheniere came in.
Sabine Pass was the first major facility built in this country to liquify and export natural gas. Cheniere only began operations in 2016 and it’s already the largest producer of LNG in the United States and the second-largest LNG operator in the world.
But this is just a snapshot in time, and Cheniere is still young and expanding. Cheniere was already the number one supplier of LNG to Europe in 2022 and 2023. It is expected to supply the bulk of demand growth in China in the years ahead. The Sabine Pass facility is targeting a significant expansion to begin in 2026. The facility currently operates six trains (gas liquefaction systems) with production of 30 million tonnes per annum (mtpa) and plans to build three more.
As an MLP, Cheniere pays no tax at the corporate level provided it passes on the bulk of earnings to unit holders in the form of distributions. There is a K-1 form generated at tax time, but you get a higher level of income from money that would have been lost to taxes with a regular company. The distribution was reduced early this year to free up money for expansion and is currently $3.24 per year in quarterly increments of $0.81 per unit for a current yield of 7.35%. The distribution is well covered with cash flow backed by strong contracts from investment grade-rated customers.
Ordinarily, high income stocks tend to have low total returns. But CQP bucks that trend with total returns of 59% over the past three years and 72% over the last five. The strong price action creates larger call premiums and a great potential to further enhance the income.
Cheniere Energy Partners, L.P. (CQP)
Security type: Master Limited Partnership
Sector: Energy
Price: $54
52-week range: $45.51 - $62.34
Yield: 7.35%
Profile: CQP owns and operates the natural gas liquefaction facility know as Sabine Pass for parent company Cheniere Energy, the largest U.S. producer of liquified natural gas (LNG) for export overseas.
Positives
- Access to abundant and cheap U.S. natural gas for export at a higher price.
- Global LNG market is growing, and Cheniere is aggressively expanding capacity.
- Cheniere was first and has a leg up on the competition.
Risks
- Qatar produces LNG at a lower cost.
- Much anticipated growth in exports is anticipated to China and it could be jeopardized if relations sour.
Cheniere Energy Partners, L.P. (CQP)
Next ex-div date: August 8, 2024, est.
Portfolio Recap
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $125.21 | $140.00 | 4.15% | -0.32% |
| American Tower Corp. | AMT | 1/23/24 | $202.26 | $210.14 | $220.00 | 3.08% | 5.70% |
| Brookfield Infrstr. Cp. | BIPC | 2/27/24 | $32.64 | $38.09 | $40.00 | 4.25% | 16.36% |
| Cheniere Energy Prtns. | CQP | 7/23/24 | $53.11 | $60.00 | 7.35% | ||
| Enterprise Product Ptnrs. | EPD | 2/27/24 | $27.61 | $30.00 | $30.00 | 7.00% | 10.61% |
| FS KKR Capital Corp. | FSK | 4/23/24 | $19.42 | $20.17 | $20.50 | 13.88% | 7.80% |
| Main Street Capital Corp. | MAIN | 3/26/24 | $46.40 | $50.15 | $50.00 | 8.26% | 10.87% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $72.00 | NA | 2.86% | -3.97% |
| ONEOK, Inc. | OKE | 5/29/24 | $79.59 | $83.47 | $84.00 | 4.74% | 4.87% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $186.21 | $165.00 | 1.83% | 48.33% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $57.58 | NA | 5.48% | 1.76% |
| Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| MAIN Sep 20 $49.40 call | MAIN240920C00049400 | Sell | 6/27/24 | $2.00 | $1.70 | $2.00 | 4.31% |
| BIPC Sep 20 $35.00 call | BIPC240920C00035000 | Sell | 7/16/24 | $3.00 | $4.70 | $3.00 | 9.19% |
| as of close on 07/19/2024 | |||||||
| SOLD STOCKS | |||||||
| X | 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 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95 | 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% |
| AbbVie Inc. | ABBV | Called | 7/25/23 | $141.63 | 3/15/24 | $160 | 15.11% |
| Marathon Petroleum Corp. | MPC | Called | 10/24/23 | $149.45 | 3/28/24 | $165 | 12.06% |
| The Williams Companies, Inc. | WMB | Called | 8/24/22 | $35.58 | 5/17/24 | $35 | 7.14% |
| 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 | 11/22/23 | $6.00 | 1/19/24 | $6.00 | 5.11% | |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/23 | $3.50 | 1/19/24 | $3.50 | 8.71% | |
| ABBV $160 Mar 15th call | in-the-money | 1/10/24 | $7.00 | 3/15/24 | $7.00 | 4.94% | |
| MPC $165 Mar 28th call | in-the-money | 2/14/23 | $10.00 | 3/28/24 | $10.00 | 6.69% | |
| QCOM $170 Apr 26th call | out-of-money | 3/12/24 | $10.00 | 4/26/24 | $10.00 | 7.42% | |
| WMB $35 May 17th call | in-the-money | 3/12/24 | $2.00 | 5/17/24 | $2.00 | 5.62% | |
| QCOM $200 July 19th call | out-of-money | 6/5/24 | $12.00 | 7/19/24 | 12 | 8.91% | |
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.1%
This niche REIT that owns and operates innovation campuses has pulled back a little after a surge earlier this month. It had a big move higher when the interest rate prognosis improved and has since had a quite normal consolidation. But the rest of the year should be good as long as interest rates do indeed move lower and the Fed acts. ARE had a rough couple of years but has shown upside potential when it looks like interest rates will fall. This is a solid REIT that reported strong earnings and raised the dividend again last quarter. BUY
Alexandria Real Estate Equities, Inc. (ARE)
Next ex-div date: September 28, 2024, est.
American Tower Corporation (AMT)
Yield: 3.1%
AMT had a similar surge earlier this month but has not pulled back. It was more beaten down than ARE and probably has more upside in the near term. AMT has been bouncing around with interest rates for a long time. But it has rallied to within less than 4% of the 52-week high. The cell tower REIT reports earnings next week and a good report could propel it to a new high. The REIT rallied strongly after beating estimates last quarter. It also raised guidance for 2024. It’s a solid REIT with stronger growth than most of its peers but interest rates will be the biggest determinant of performance in the near term. BUY
American Tower Corporation (AMT)
Next ex-div date: September 14, 2024, est.
Brookfield Infrastructure Corp. (BIPC)
Yield: 4.2%
This great infrastructure company stock finally got a move on. It is now at the highest price since last fall. It’s up over 15% in July alone. BIPC had been a stellar performer for many years prior to inflation and rising interest rates. Higher interest rates increase borrowing costs and limit the company’s ability to profitably fund growth projects. But there is pent-up upside in BIPC when interest rates significantly decline. The operational performance has been sound. Brookfield reported strong earnings last quarter and reports again in two weeks. BUY
Brookfield Infrastructure Corporation (BIPC)
Next ex-div date: August 31, 2024, est.
Enterprise Product Partners L.P. (EPD)
Yield: 7.0%
This midstream energy partnership just hit a new 52-week high, but it hasn’t had the big move this month that the REITs had because it hadn’t been beaten up like those stocks. It just continues to trend higher at a snail’s pace. It has been trending higher for nearly four years. As this rally broadens out, the high yield and inflation protection make midstream energy companies an excellent choice. Last quarter’s earnings again showed Enterprise is solid operationally and that huge distribution yield is safe and the company reports the new quarterly results next week. (This security generates a K-1 form at tax time.) BUY
Enterprise Product Partners L.P. (EPD)
Next ex-div date: July 31, 2024
FS KKR Capital Corporation (FSK)
Yield: 13.9%
The massive-yielding BDC pulled back last month after the quarterly payout went ex-dividend. When a yield is this high and this important to the stock, the ex-date has a noticeable impact. But after the BDC absorbed the ex-dividend, it has been crawling back toward the high and is now within pennies. So far, FSK is delivering as advertised. It’s continued to pay the massive dividend and the price has appreciated since it was added to the portfolio. BUY
FS KKR Capital Corp. (FSK)
Next ex-div date: September 14, 2024, est.
Main Street Capital Corporation (MAIN)
Yield: 5.7%
Some of the best income stocks are rallying again in the broadening market rally. This Business Development Company pulled back somewhat after making a high in early May, but it moved higher again since and made a new 52-week high last week. It’s still in an uptrend that began last fall and has been steady for weeks. MAIN paid the regular monthly dividend of $0.72 per share in the second quarter, marking a 6.7% increase year-over-year, as well as a $0.30 supplemental dividend. The current yield is reflected above as 5.7% because I only include the regularly scheduled dividend. Including the supplemental dividends, the yield is 8.3%. BUY
Main Street Capital Corporation (MAIN)
Next ex-div date: August 8, 2024
NextEra Energy, Inc. (NEE)
Yield: 2.8%
Things have been very bouncy but mostly good for this combination regulated and alternative energy utility. Yeah, it’s down almost 9% from the high made at the end of May. But it is still up 33% since early March. The stock price is still well below the all-time high but it has come way off the lows of late 2023. NEE has become a more volatile stock over the past year as the interest rate narrative changes. But NextEra posted solid earnings last quarter and reports the most recent quarter this week. NEE had been a superstar performer before inflation and rising interest rates. I expect solid performance going forward over the longer term. HOLD
NextEra Energy, Inc. (NEE)
Next ex-div date: September 3, 2024, est.
ONEOK, Inc. (OKE)
Yield: 4.7%
This amazing midstream energy company just made a new all-time high this week. OKE is more volatile than the other midstream energy companies and this improved interest rate news and broadening rally makes it volatile to the upside. Earnings are rock solid with inflation protection and recession resilience. The higher volatility also provides for high call premiums, which have already benefited the OKE portfolio positions during earlier holding periods. It’s in good covered call range now but I will wait to see if the current rally propels OKE still higher in the weeks ahead. BUY
ONEOK, Inc. (OKE)
Next ex-div date: August 1, 2024
Qualcomm Corp. (QCOM)
Yield: 1.7%
The technology sector, and chip stocks in particular, took a huge hit last week. The technology-laden Nasdaq index fell over 3.6% last week alone. QCOM fell 8% in the same week after having already declined nearly 15% from the high. The issue was the Biden Administration put additional restrictions on AI chip exports to China as at the same time a Trump presidency seemed more likely. Chip makers that sell to China took a huge hit because of not only the export curbs but fears of retaliation. This sort of thing happens periodically. We’ll see if the market overreacted. The good news is that the calls expired on Friday, and we get to keep the stock, which is likely to move higher over the rest of the year. BUY
Qualcomm Inc. (QCOM)
Next ex-div date: September 5, 2024
Realty Income Corp. (O)
Yield: 5.5%
Even this lackluster performer is getting into the act. O is up over 10% already in July and the rally might have legs. It has been underperforming the other REITs but maybe that changes if the interest rate situation truly changes for the better going forward. The stock was downgraded to HOLD because of lackluster performance but it is participating in this rally. Hopefully things are changing in the market and for the stock in a way that can deliver some sustained upside. HOLD
Realty Income Corporation (O)
Next ex-div date: August 1, 2024
Existing Call Trades
QCOM July 19th $200 calls at $12.00 – Expired
Call premium: $12.00
Dividends: $10.62
Total: $22.62 (total income of 16.8% in 3 years and 2 months, and 33% if you sold the two previous calls)
QCOM has been volatile since these calls were sold in early June, first to the upside and then to the downside. The stock began last week very close to the strike price but closed the week much lower after the China news wreaked havoc on chip stocks. QCOM is still a good stock to keep and there is still a huge unrealized capital gain on the positions. We have already generated 33% in income from this stock and will likely get a chance for more in the weeks and months ahead.
Sell BIPC September 20th $35 calls at $3.00 or better
The call price is currently well above the targeted price at $4.70. You probably got better than $3 per call if you sold it last week, but I’ll use the $3 as the portfolio price. I like BIPC going forward, and shares might be called. But if they are called, you’ll probably also get a price boost in ARE and AMT. This way we lock in a high income on one of the recent market beneficiaries in case the rally doesn’t last.
Sell MAIN September 20th $49.40 calls at $2.00 or better
This is a great income stock with an effective yield, including supplemental dividends, of about 8.3% and it makes payments monthly. But the market is toying with nose-bleed territory and is showing some kinks in the armor. These calls embellish an already stellar 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 August 27, 2024.
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