100 High-Yield Equities Were Down Big Last Week: These 10 Are Worth A Look

Last week was volatile and painful for many higher-yielding securities. For example, REITs, BDCs and MLPs (all known for high-yield) sold off significantly (see charts below). We are in no way suggesting last week was a bottom (or suggesting an immediate rebound) for any of these securities, but we do believe some high-quality companies have sold off thereby making for more attractive entry points for long-term investors. This article highlights 100 high-yield equities that sold-off last week, and then reviews 10 specific opportunities that long-term income-focused investors may want to consider.

For starters, here is the list of 100 high yield equities that sold off.

(Data source: Stock Rover. Data dates: 4/28/17 – 5/4/17).

Before getting into the ten specific opportunities, first we review a few reasons for the sell-off. For example, declining oil prices hurt the energy sector, which clearly had a big impact on many of the Master Limited Partnerships (MLPs) in the group because they are largely energy-related.

And here is a look at the recent performance of the Alerian MLP Index.

However, in addition to hurting the energy sector, declining oil prices also hurts many high yield debt securities. Specifically, here is a look at the high-yield bond ETF (JNK) versus the S&P 500 over the last week.

And interestingly, as high yield sells-off, BDCs often sell-off too. The reason is because BDCs provide financing (generally debt) to riskier middle-market companies (BDC’s are often essentially riskier high-yield debt funds). And here is a look at the BDC index performance versus the S&P 500.

Additionally, REITs are also sensitive to the debt markets because they rely on outside capital to finance growth. REITs have significantly underperformed the market (SPY) over the last year because investors fear the negative impacts of rising interest rates, especially considering the aggressive growth agenda of the Trump Administration. Here is a look at how REITs have performed over the last year and over the last week.

(Note: REITs made up a lot of ground on Friday, but not all of them did as we’ll see later in this report).

And here is a look at the decline in interest rates (long-dated treasuries) over the last week.

Overall, it was a tough environment for REITs, BDCs and MLPs last week, and that helps explain the declines. However, we also believe the declines have created some attractive entry points for long-term investors. For example, here are ten specific high-yield investment opportunities that income-focused investors may want to consider given the recent decline in prices.

Real Estate Investment Trusts (REITs)

1. Welltower (HCN), Yield: 5.0%

Welltower is a big-dividend healthcare REIT that was down 2.3% the last week. It is one of the more blue chip opportunities in the healthcare REIT space, and it currently trades at an attractive 15 times Funds from Operations (FFO).

Welltower is “well-diversified across senior housing (triple-net and operating), outpatient medical and long-term post-acute.” It also benefits from strong demographic tailwinds of an aging population and growing healthcare needs. If you are looking for a high-quality REIT that pays a big dividend and trades at an attractive price, Welltower is worth considering.

2. Realty Income (O), Yield 4.5%

Realty Income is an income-investor favorite because it pays big safe monthly dividends. And as the following chart shows, its price came down significantly last week.

Additionally, the dividend payment has increased for 77 consecutive quarters. We believe O is worth considering now because its business remains strong but its valuation has also come down. Specifically, the following chart shows that Realty Income’s price versus its Funds from Operations (“FFO”) has come down significantly since last summer (i.e. the shares are on sale).

Plus, Realty Income only expects to pay out ~ 83% of its adjusted FFO as dividends in 2017, which is a healthy margin of safety for this low beta company. If you are a long-term, income-focused, value investor, Realty Income is worth considering, especially after this week’s decline.