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Playing It Safe with Dividend-Paying MLP and Utility Stocks

Ryan McQueeney

Stocks on Thursday opened lower, putting the S&P 500 on pace to snap its longest winning streak in months. Whether the streak will indeed be broken remains to be seen, but Thursday’s uncertainty is a reminder that a continued rebound from December’s selling won’t always be smooth sailing—especially with key companies issuing sluggish guidance.

Nevertheless, Associate Stock Strategist Ryan McQueeney did want to dip his toes back in the water, albeit cautiously, this week, after cutting some of the Income Investor portfolio’s sluggish stocks before the New Year.

Ryan took a defensive posture, acknowledging that stocks were well off the lows but arguing that it still makes sense to be risk averse in our current climate. His picks to pull this off were MPLX MPLX, a midstream energy master limited partnership, and utility giant Dominion Energy D.

MPLX should provide some security because midstream companies are typically the least price sensitive, and as an MLP, it promises a steady cash income. Sure, there are some tax considerations to factor in with these types of companies, but the promise of near-term gains and strong dividend payments were enough to convince Ryan.

Another factor behind Ryan’s decision to add MPLX to the portfolio was a “Buy the beaten-down stocks” philosophy. While not necessarily dependent on oil prices, MLPs didn’t make it out of last year’s volatility in equities and commodities unscathed, as the industry’s index fell about 24% in the final three months of 2018. Ryan is hoping that MPLX will continue to rebound strongly from there.

Meanwhile, Ryan likes Dominion Energy for many of the same reasons people typically buy utilities, including its healthy dividend payout and promise of stability. Dominion Energy yields about 4.7% annually, and its shares are trading at a slight discount to their industry average. Plus, the stock has a beta of just 0.21.

Dominion even offers strong growth prospects, with analysts projecting a long-term EPS expansion rate of 6.6% right now.

And what’s the cherry on top of all of this? Both of these stocks have seen positive earnings estimate revisions, earning them Zacks Rank #2 (Buy) ratings! Check out today’s video to hear more of Ryan’s thoughts on MPLX and D.

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