02-15-2014, 10:40 PM
Are there really interest rate risks? I think this is highly debatable. I have looked into all of these companies in depth and would love to discuss them with everyone.
The midstream MLPs are for the most part like toll roads. They have contracts with production companies to transport liquids at fixed rates that have built in escalator clauses and are for the most part take-or-pay. The recent bashing of Kinder Morgan by HedgeEye and Barron's were ill-conceived and ill-researched and simply gave us some profitable buying opportunities.
The production MLPs are more speculative in that they are dependent on commodity prices, but not totally because they hedge most or all of their production at advantageous prices.
The mortgage REITs make their profits on the spread between short and long rates, and hedge their portfolios to a certain extent. As long as this spread exists they will make money and pay a dividend. For those who doubt this I invite you to look at a long term chart of NLY and compare it with the dynamic yield curve. Here is the NLY chart: http://bigcharts.marketwatch.com/advchar...e&state=11
Here is the dynamic yield curve: http://stockcharts.com/freecharts/yieldcurve.php
The NLY dividend dropped as the yield curve was approaching a negative slope in 2005, but even when the yield curve went negative in 2006, NLY continued to pay a dividend. Remarkable.
The equity REITs underwent a significant selloff starting in May of last year, but they continued to pay their dividends, and none of them failed to raise their dividend in a timely manner. Future interest rate increases will affect each differently depending on when their various funding sources mature and what refunding rates will be at those times. Blanket generalizations are essentially worthless.
Many authors and commenters on SA have assumed that BDCs will be negatively impacted by rising rates. I have looked at the 10-Ks and 10-Qs of those I own, and none of them will actually be negatively impacted. The reason is that they lend based on LIBOR, so that when rates rise, so does their interest income. Once again, without detailed knowledge of how these companies are funded and how they invest, blanket generalizations are worthless.
Finally there are the tobacco companies. Love 'em! Mighty MO and its offspring, PM!
The midstream MLPs are for the most part like toll roads. They have contracts with production companies to transport liquids at fixed rates that have built in escalator clauses and are for the most part take-or-pay. The recent bashing of Kinder Morgan by HedgeEye and Barron's were ill-conceived and ill-researched and simply gave us some profitable buying opportunities.
The production MLPs are more speculative in that they are dependent on commodity prices, but not totally because they hedge most or all of their production at advantageous prices.
The mortgage REITs make their profits on the spread between short and long rates, and hedge their portfolios to a certain extent. As long as this spread exists they will make money and pay a dividend. For those who doubt this I invite you to look at a long term chart of NLY and compare it with the dynamic yield curve. Here is the NLY chart: http://bigcharts.marketwatch.com/advchar...e&state=11
Here is the dynamic yield curve: http://stockcharts.com/freecharts/yieldcurve.php
The NLY dividend dropped as the yield curve was approaching a negative slope in 2005, but even when the yield curve went negative in 2006, NLY continued to pay a dividend. Remarkable.
The equity REITs underwent a significant selloff starting in May of last year, but they continued to pay their dividends, and none of them failed to raise their dividend in a timely manner. Future interest rate increases will affect each differently depending on when their various funding sources mature and what refunding rates will be at those times. Blanket generalizations are essentially worthless.
Many authors and commenters on SA have assumed that BDCs will be negatively impacted by rising rates. I have looked at the 10-Ks and 10-Qs of those I own, and none of them will actually be negatively impacted. The reason is that they lend based on LIBOR, so that when rates rise, so does their interest income. Once again, without detailed knowledge of how these companies are funded and how they invest, blanket generalizations are worthless.
Finally there are the tobacco companies. Love 'em! Mighty MO and its offspring, PM!