A Little Bit of Relief for Income Investors

The average $25 preferred and baby bond fell by $1.09 (4% more or less) in the big downdraft yesterday–but we got a little relief today. Today the average share went up around 25 cents (1% more or less).

Weakness continued in a number of preferreds issued by lodging REITs (i.e. Ashford, Hersha, Sotherly and Summit) where there were a number of 50 cent and $1 moves lower–with Sotherly issues moving lower by $1.70, $1.82 and $2.48 respectively–ouch. The SOHO issues are around 11% in current yield.

Some of the mREITs continued lower today as well. Giant AGNC saw all 4 preferreds move lower by 1.5% to 3%, while Annaly issues were all down 1%.

I did absolutely no buying or selling today–with the news of various schools shutting down, the price of crude oil remaining low and airlines cutting schedules it is leading me to pause. I just can’t help but think we will have plenty of opportunities to buy bargains—and shares that look like bargains today, may be much cheaper tomorrow or next week.

We know from past experience that the higher yield issues bounce back best from very low panic prices–but right now I am NOT certain we have seen those panic lows--they may remain to be seen as economic dislocation takes place.

So I will continue to watch–if I do anything it is just more nibbling, but maybe not even that. I will probably sell the ill fated Golar LNG 8.75% perpetual (GMLPP) shares tomorrow. Obviously it was a poor decision to make this small purchase–for which I now have a $6/share loss–I hate losses (I guess I could change my thought process to ‘you only have a loss if you sell’–what balony).

Well let’s see what kind of wild trading will occur tomorrow.

18 thoughts on “A Little Bit of Relief for Income Investors”

  1. Articles today talked about oil patch debt. Was why OXY cut dividend. Buyers must of thought that was a positive. But I wouldn’t buy into that. That is supposed to cover 4 billion of debt over a yr. Right now a year is a long time

    1. That’s half the story. Also a reasonable reaction to a severe but manageable (until now) bubble.

    2. “I feel I’ve being given a golden opportunity to get good quality issues at bargain prices.”

      Some examples, please?


  2. My only move last two days was a stink bid on AVGO yesterday at $250 and GAINL today at $25.01. My energy preferred getting gutted but the rest hanging in well.

  3. Excellent end of day summary – thanks Tim.

    Tim, or anyone care to offer some plausible reason for just the mREITs to drop while other preferreds gained? Could it be more than some specific mREIT related or a hedge fund holding those big time needing to liquidate those due to distress elsewhere (eg being long Oil when it tanked 30%).

    Wouldn’t lower rates help mREITs going forwards?

    1. My concern with the mREITS is spread compression with both short and long rates falling to nothing. Lower short rates help reduce their costs of buying MBS, but with long rates falling, I am concerned about their income and obviously, dividends. There is just no room when you get down to zero for income.

      1. That’s more of a concern for common stock holders. Dividend cuts don’t affect the preferreds until bankruptcy. So I look for REITs that have a plan to stay solvent in a crisis moreso than those trying to maintain an oversized dividend.

        1. Martin G, dividend cuts on common stocks DO impact preferred stock holders of mREITS. The shallow volume of trades on those preferred stocks go into a downdraft that send the stock down. Last I looked, they also can suspend the preferred dividend. What is that going to do to the price of the stock.

          1. Need to figure out why the price is dropping. If it’s just falling with the tide that could be a buying opportunity. If the company’s in hot water, it’s not.
            Dividends rarely suspended unless absolutely necessary. Bad investor relations and panic inducing, Theoretically it could happen any time they feel like it, but it hasn’t been a major concern for me.

            1. A little disconcerting to see AGNC and NLY preferreds doing worse than some of the other mREITS. Some of the MITT issues have held up better so far lol. I think their turn is next.

              Still the AGNC and NLY issues are down roughly in-line with HYG, so I don’t think there is any specific cloud over them. Anything high yield that is down 10-15% from the highs is mirroring the broad HY market.

    2. It’s a common misunderstanding, that low yields are good for mReits. When you buy an mReit, you are basically buying the difference between government rates and mortgage rates leveraged 5-10X. When spread widens you lose – when it tightens you win. Furthermore when rates fall a lot of your mortgage bonds will be prepaid and you have to reinvest at a lower rate (not good). mReits are falling as investors are worried that there will come a wave of prepayments.

      1. Or like last time when banks and mortgage lenders ended up with a wave of borrowers defaulting on loans. Low rates don’t help if you have a large mortgage and no job or interruption in income. This applys to both businesses and homeowners. Look at what just happened in China. Modern communication travels fast along with fake news so old saying take with a grain of salt, but what did you read in news lately about China? Large parts of economy shut down so no businesses operating no people working no cash flow so no one could pay .
        Not trying to be negative, but this could be early stages of freeze up in credit market like last time 10 to 12 yrs ago.

  4. More pain to come in the oil patch. Supertankers booked. Voyage from Saudi Arabia to US Gulf Coast takes about 40 days. If less expensive Saudi Oil replaces or is a substitute for US shale oil are we still on the path towards deglobalization??? Also can the refineries easily substitute one oil type for another or is that a problem?

    1. We need to chance plans in US and not sell the strategic Oil Reserve that the govt has. Apparently this was done to help manage our federal deficits. Our own government should not be causing pain to our businesses in the oil business.

      We deferred sale today. We need to postpone until further notice and oil price stabilization.


    2. Yeah, many folks are frozen like deer in the headlights, Dave. I’m buying but I’m trying to stay with the very highest quality. So I consider it a gift, like today when overleveraged funds started puking up the best and the brightest. Geez, if I’m wrong, I’m wrong, and we’ll all have solar panels on the roof, a windmill in the backyard and a Tesla in the garage. Not an ICE anywhere in sight. But that’s not how I’m betting.

      The Saudis can’t pay their vig at $30 oil. MMP @ a 10% yld, and EPD at almost 11%. My goodness. It’s a dream come true, one I’ve been waiting on it seems like forever.


      1. CNBC Fast Money leader, Guy Adami, seems to call it long before the black swan came in. He was one of the few who believed that J Powell was not wrong in delaying rate cut. He was bearish for quite a few weeks before the market tanked. At present, no one there is long on mlp energy or even XOM or Chevron. I held onto my EPD and MMP (MMP is not trashed as bad). Yesterday, Brookfield renewable and AY and TERP (a new one owned by Brookfield) experienced sizeable drawdown. I may consider selling BEP (Brookfield renewable) common since my initial purchase cost basis was low (of course the new additional shares suffer unrealized [UNTIL I sell] loss. CNBC is forecasting Dow to open with 600 points down with similar percentage decline on SP. Someone wrote an article pushing buying CTL common which has been recently ex div. This time, I have learned my bitter lessons, will not follow. CTL does have decent technology. They have been trying very hard to increase the new tech biz to offset continuing declining sales in their old obsolete biz. With the COVID-17, I do not see that they will have raging REVENUE increase.

        Tim, Golar partner “confessed” in their 8 K that they issued more GMLPP to offset revenue decrease.” I believe GLOG and GLOP issued more shares of GLOP if I remember correctly. HMLP the strongest shipper as opined by someone (probably Lord Xot in Silicon) as the one with the best balance sheet, apparently suffered revenue decline as COVID-17 making the energy need drastically lower.

        On the Putin vs. Saudi Arabia, the CNN Biz article explains as follows:

        Tim you are absolutely correct, more problems ahead, it seems:

        CNBC is forecasting Dow to open with 600 points down with similar percentage decline on SP circa 7 a.m. EDT.

        1. @johnkcal – “Golar partner “confessed” in their 8 K that they issued more GMLPP to offset revenue decrease”

          Could you clarify? GMLP’s latest 6-K (Q4 earnings release, filed 2020-02-25) says they didn’t sell any additional preferred shares under their ATM program. Where are you seeing otherwise?

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