In this video, Barron’s editors Jack Otter and Jack Hough discuss the outlook for income investing in 2015. Mr. Hough recently wrote a Barron’s cover story on the same topic, which was characterized as pessimistic, but he and Mr. Otter examine a few areas in which there may be hope: MLPs, REITs, and BDCs.
While MLPs (master limited partnerships) have performed well over much of the past five years, the recent and rapid drop in crude-oil prices has hammered many of them to the point that many production-oriented oil MLPs have double-digit yields. Mr. Hough says that the high-yielding MLPs will likely endure distribution cuts, but fundamental analysis reveals that many of them may still be good bargains.
When it comes to REITs (real estate investment trusts), Mr. Otter says his policy is to never buy REITs when they’re yielding less than 4%. The average REIT today is yielding 2.9%. Mr. Hough says there may be opportunity in the hotel REIT space where yields are higher due to greater risk.
Finally, on the subject of BDCs (business development companies), Mr. Hough explains that many have taken on “junk quality” loans, so while he sees opportunity in the space, he advises against “piling in” to them. Many BDCs have made loans to struggling energy-sector firms.