Oversold MLPs and REITs

Oversold MLPs and REITs Offer Select Opportunities for Income Seekers

6 names to consider in these high-yield sectors.

Robert Powel | Real Money |  March 27, 2018

The bull market recently turned nine years old, and, as with most anniversaries, it provided a chance for advisers to reflect on a stock market in which the S&P 500 quadrupled and then some, the Dow Jones industrial average rose 280%, and the Nasdaq Composite rose 486%.

But how did investors seeking income in the form of dividends perform?

“Income investing has been especially challenging through the bull market, due in large measure to the historic decline in interest rates coming through and out of the great recession,” says Christopher Hopkins, CFA, a vice president and portfolio manager for Barnett & Co. in Chattanooga. “This is in part due to central bank actions to flood the markets with liquidity but is also a natural consequence of the increasing wealth generated in the emerging markets.”

Much of this wealth, Hopkins says, has found its way into developed economy sovereign debt such as U.S. Treasuries, German bunds, and the like. “This has reinforced central bank policy and is complicating their efforts to normalize rates,” he says.

Given that backdrop, investors seeking income have chased yield in instruments outside the bond market.

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Looking back over the past nine years, Sam Huszco, a chartered financial analyst charterholder and founder of SGH Wealth Management, notes the following: “While historically bonds have usually gotten investors a higher yield over stock dividends, over the past nine years or so this has been a much tighter yield race. This may have created more demand for dividend-paying stocks as an alternative to the unusually low interest earning bonds over this timeframe.”

Going forward, Huszco thinks it’s likely that, with higher earnings due to the corporate tax rate reduction, we could see some companies increasing their dividends per share over the coming years.

“But with interest rates increasing, bond yields will be increasing as well and probably at a faster pace,” he says. “A switch over from dividend-paying stocks to bonds could potentially mean a higher income and carry less downside risk as bonds usually offer more protection in a downturn.”