Cash is continually flowing into my portfolio. I have regularly scheduled deposits that add money each month. On top of that, I invest heavily in dividend stocks. Those recurring income payments increase my cash position since I don't automatically reinvest my dividends.
Given the market's rally in recent months, I've been letting my cash position buildup. I'm waiting for the next sell-off to put some of my cash hoard to work. I currently have my eye on Energy Transfer (ET 0.48%), Blackstone (BX +1.20%), Digital Realty (DLR 1.34%), and Broadcom (AVGO +4.89%). Here's why I hope to deploy some of my cash hoard to buy more shares of these high-quality companies in the coming year.
Eyeing more income
NYSE: ET
Key Data Points
Energy Transfer became one of my largest income-producing investments last year after it acquired Crestwood Equity Partners (which I also owned) in an all-equity deal. However, I'm hoping for an opportunity to add to my already sizable position.
The big driver is Energy Transfer's lucrative and growing distribution. The master limited partnership (MLP) currently yields 9.1%. Meanwhile, the company expects to increase its payout by 3% to 5% annually. The midstream giant easily supports that big-time payout. It generates lots of stable cash flow and pays out a little more than 50% of that money to investors. It retains the rest to fund expansion projects and maintain a strong balance sheet. That balance sheet gives it the financial flexibility to make value-enhancing acquisitions like the Crestwood deal.
Given my already large position, I want to wait for a decent pullback before adding to more units (Energy Transfer's unit price gained more than 17% in 2023). I might also use some of my cash to write some put options to generate income while trying to buy more units at a lower price.
Data-driven growth
Digital Realty is one of two data center REITs I own. I added to my position when shares slumped in 2022. However, I initially held off on buying more shares last year due to concerns about its balance sheet and dividend. That caution proved costly as shares rallied more than 35% in 2023 as it secured several joint ventures to shore up its balance sheet so it could maintain its dividend (currently yielding 3.7%) while expanding its portfolio.
NYSE: DLR
Key Data Points
The data center REIT is in a much better financial position these days. It has sold stakes in several operating data centers to raise cash to fund new developments and repay debt. It also secured partners, including Blackstone, to fund future data center developments. These moves put the company in a much stronger position to grow its data center platform while paying a compelling dividend.
Given the growing need for data centers to support digitalization and AI, Digital Realty has lots of growth ahead. While I'd like to add to my position in the data center REIT, I plan to wait for a better price before boosting my stake.
Strong growth tailwinds remain
I added to my Blackstone position several times last year, taking advantage of the early weakness in its share price due to near-term growth headwinds. However, shares of the leading alternative asset manager have soared in recent months, sending the stock up more than 80% for the year. While I still think Blackstone is a decent value at the current level, I'd rather wait for a pullback before adding more shares.
One of the things I like about Blackstone is its above-average growth. The company has grown its distributable earnings by around 20% annually for the past decade, about double the market's rate. That has enabled Blackstone to pay a bigger dividend since it distributes all its earnings to investors via dividends and share repurchases.
Blackstone has several drivers that should power strong earnings growth in the coming years. Private credit is a big one. The company sees its private credit platform roughly tripling over the next decade to around $1 trillion in assets under management. The company also sees strong growth tailwinds for insurance solutions and private wealth as more high-net-worth individuals increase their allocations to alternative investments.
NYSE: BX
Key Data Points
A cash flow and dividend growth machine
I added Broadcom to my portfolio in late 2022. I took advantage of a decline in its stock price to lock in a pretty attractive dividend yield at the time from the semiconductor and software company. I wish I had bought more shares then, considering the stock doubled last year.
Two catalysts drove Broadcom higher. It finally closed its deal to buy VMWare, which will power accelerated revenue and cash flow growth in 2024. The semiconductor company is also starting to capitalize on the AI craze, which is enhancing demand for its products.
I'd love to buy more shares of Broadcom in 2024 if there's a meaningful pullback. It's a cash flow growth machine, which gives it the money to deliver healthy dividend growth. The company recently boosted its payment by 14%, its 13th straight year of dividend growth. Given its growth catalysts, I expect Broadcom to continue delivering strong dividend growth in the coming years.
Hoping to go shopping in 2024
I've been building up my cash position in recent months, hoping for an opportunity to put that cash hoard to work when the market takes a breather. In the meantime, I'm assembling a list of stocks I'd love to buy, led by Energy Transfer, Digital Realty, Blackstone, and Broadcom. In the meantime, I plan to be patient, which will give me an even bigger cash hoard to deploy during the next downdraft.
