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Investing Topics: Bonds

Good Bond Hunting

Although bonds lack the liquidity of equities and require more up-front capital to purchase, income-seeking investors shouldn’t overlook the opportunities in this corner of the energy market. Because bonds have a higher position in the capital structure than stock, a company usually privileges its interest payments over dividends or distributions to investors who own common shares or units.Bondholders also benefit more from dilutive equity issuance than shareholders.

 

Bond Update

In December 2014, we highlighted a basket of undervalued bonds issued primarily by upstream master limited partnerships (MLP) that we thought would rally if they cut their distributions to shore up their balance sheets and focus on paying down debt. We also reasoned that these securities would pop on any relief rally in energy prices. This strategy worked nicely and we took some decent profits off the table. A similar opportunity appears to be in the works.

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    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor