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When we saw the employment numbers yesterday it became quickly obvious that income issues were likely in trouble for the day as the 10 year treasury shot up by 10 basis points immediately and then continued to climb until reaching 2.25%.

Both REITs and Utilities have been substantially overvalued for a while and honestly the setback is more than overdue. Certainly we will see more days similar to Friday as the year goes on. REITs are now off their 52 week high by 11%–yesterday alone they fell 3.4% on average–a huge move–look at this pageto see the carnage.

Now as one is looking at the carnage in these sectors you can begin to find the bargains—for instance Realty Income (everyones favorite REIT) (ticker:O) is now trading 15% below its 52 week high with a current yield of 4.65%–versus the previous 4.1% at its 52 week high. The bigger question is—will it be a bigger bargain in the weeks and month ahead? This is always the unknown. One has to determine if they want to own it and if the yield at their purchase price fits their investing needs. If the answer is that it fits their needs then it is a buy to them. NO ONE knows if it will go higher or lower–or when that might happen. For us we would need to see O down around $40 to make the yield attractive–so we wait–if it gets there fine–if not that is OK also.


Yesterday was also unkind to essentially all income sectors, but generally not as unkind as it was to the REITs. Preferreds and exchange traded debt shares were off over 1%. While we don’t like losing money in our portfolios we know that if rates continue to rise we will have the opportunity to purchase issues at much more attractive yields–we would love to have exposure to some utility shares, but we require a better yield than the 2% , 3%, 4% that most have been offering.

We have set our expectations for 2015 as being one in which capital losses in our portfolios may occur and dividends received help to keep us ‘whole’. A 7% goal will be a stretch for the year.

Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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