This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

After The Bloodletting: Are REITs And MLPs Still A Buy?

By Charles Sizemore

“Sell in May” would have been bad advice for stock investors in 2013. The S&P 500 tacked on over 2% in the month, even if the last week and a half was a little rough.

But investors in REIT and MLP shares—which until recently were some of the best performing assets—have suffered something of a bloodletting.

The MLP sector, as measured by the JP Morgan Alerian MLP ETN (AMJ) was down 5% from its May 20 close through the end of May, and REITs, as measured by the Vanguard REIT ETF (VNQ), were down more than 8% in that period. Looking at individual securities, the numbers get worse. Realty Income (O), National Retail Properties (NNN), and Retail Opportunities Investment Corp (ROIC)—three REITs I hold in my Dividend Growth were down 17%, 14% and 10% respectively for this period. Martin Midstream (MMLP), a  high-yielding MLP I hold in the same portfolio, was down by just under 10%.

June hasn’t brought relief for the REIT and MLP sectors. And utilities, telecoms and other so-called “defensive sector” stocks have also taken heavy losses.

For stocks that were often purchased precisely for their potentially low-volatility and high-income properties, it’s frustrating to see that much value evaporate lately, particularly when the broader market is holding up well. But as investors, it doesn’t do us a lot of good to dwell on our frustrations.  We have to look forward and allocate our capital based on the options in front of us.

So, what are our options?  Is the bull market in dividend paying stocks over?

I personally don’t believe so. As asset classes, REITs, MLPs and other income-oriented investments have outperformed the market in recent months, and they were probably due for a much-needed correction.

“Boring” sectors cannot lead a broad bull market forever; eventually cyclical, economically-sensitive need to take leadership. And that is what appears to be happening today. Daimler (DDAIF) and Cummins (CMI), two industrial stocks held in some of my more aggressive portfolios, have been performing well, as have my Big Tech dividend payers Intel (INTC), Microsoft (MSFT) and Cisco Systems (CSCO).

For the remainder of 2013, I see these stocks being in a sweet spot for investors.  All are dividend paying stocks, yet I believe all should also benefit from a potential rotation from defensive sectors to growth sectors.

And what about REITs and MLPs?

I’m not quite ready to give up on those just yet. I believe the recent selloff was due to fears that the Fed would be unwinding its quantitative easing programs, and that bond yields would soar as a result. But as the experience of Japan has proven, during a prolonged period of deleveraging bond yields can stay much lower for much longer than most investors expect.

Could the 10-year Treasury rise to, say, 2.5%-3.0% over the course of the next 12-18 months? Absolutely. But I would consider that the high-end of a long range that I expect to persist for the remainder of this decade.

In the meantime, both REITs and MLPs stand to benefit from durable trends that I personally believe should continue irrespective of what the Fed does. The American property market continues to heal, and the domestic energy boom continues to provide ample demand for pipeline assets. Under even modest expectations, I believe REITs and MLPs should be able to grow their cash distributions at a rate well in excess of inflation.

For our  portfolios for the rest of 2013, I am planning to overweight cyclical dividend payers, particularly those in the tech sector. But I am making sure to save room for REITs and MLPs and are prepared to buy on any continued weakness.

Get to know Charles:

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.24 1.30%
FB $99.80 -4.10%
GOOG $683.10 -0.07%
TSLA $148.02 -9.00%
YHOO $27.05 -3.30%


Chart of I:DJI
DOW 16,027.05 -177.92 -1.10%
S&P 500 1,853.44 -26.61 -1.42%
NASDAQ 4,283.7530 -79.3910 -1.82%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs