Master Limited Partnerships Revealed:
The Best MLP Investments and
Master Limited Partnerships to Own Now

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Master limited partnerships (MLPs) offer investors a simple value proposition: tax-advantaged high yields and strong recession-resistant growth potential. And the group offers capital gain potential as well; the total return on the Alerian MLP Index has trounced the broader market over a trailing 10-year period, returning 13.9 percent annualized against a near 4 percent annualized decline for the S&P. In 2009, the index logged the best one-year gain in its 14-year history, a whopping 77 percent total return! Despite this run-up, MLP investments remain attractively priced and aren’t overvalued on any historical measure.

Just as important, master limited partnerships allow investors to defer much of their personal income tax liability for years into the future or, in many cases, indefinitely. And the group is not subject to America’s 39.25 percent corporate tax rate, among the highest such rates of any nation in the world. The industry’s favorable tax treatment should continue to attract legions of investors looking to avoid a big tax bill as Mr. Obama’s new taxes take effect after 2010.

Sustainable high yields, low taxes, and limited sensitivity to energy prices are a combination that’s hard to beat! There has never been a more opportune time to invest in the master limited partnership group. In our latest report, Master Limited Partnerships Revealed: The Best MLP Investments and Master Limited Partnerships to Own Now, we highlight six of our favorite master limited partnerships to add to your portfolio today.

Here’s a sneak peak of what we cover in much more detail in the report:

Master Limited Partnership #1—
Rock-solid cash payout and one of the largest and oldest MLP investments in the U.S.

Master Limited Partnership #1 focuses primarily on the ownership of assets related to natural gas. This MLP investment has never cut its dividend and, in fact, has increased its cash distribution for 21 consecutive quarters! Based on its current distributable cash flow and payout, the MLP covers its distributions 1.2 times, considered a healthy coverage ratio for master limited partnerships.

One of this MLP’s largest projects completed recently is located near a prolific gas-producing unconventional play known as the Barnett Shale. The Barnett Shale has seen unprecedented growth in production over the past decade.

This pearl among master limited partnerships should be able to grow its distributions by roughly 6 percent year-over-year over the next 12 months. And with a sky-high coverage ratio, the MLP’s distribution is absolutely secure.

Based on its unblemished record of boosting distributions, attractive financing position and ongoing organic projects, this MLP is one of the best you can buy.

Master Limited Partnership #2—
Upstream master limited partnership with substantial proven reserves and 100% priced-hedged

Master Limited Partnership #2 is involved in the actual production of oil and natural gas. Like most master limited partnerships involved in the upstream business, this MLP focuses primarily on mature fields. But mature doesn’t mean stagnant. Master limited partnerships can undertake low-risk drilling projects on mature fields because the geology and behavior of these fields is well known from years of actual production data.

All told, this MLP investment has around 1.7 trillion cubic feet of gas-equivalent reserves—just over half of its reserves are natural gas. Close to 70 percent of those reserves are proved, developed reserves.

Best of all, this MLP is one of the most heavily hedged master limited partnerships you’ll encounter. The master limited partnership has hedged all of its production through to the end of 2011 and more than two-thirds of its planned production in 2012.

Master Limited Partnership #3—
An MLP fund specializing in master limited partnerships investments: Taxes Made Easy

There are a handful of closed-end funds and an exchange traded note (ETN, a type of MLP index fund) trading on the major exchanges (typically the NYSE) that invest exclusively in master limited partnerships. Taxes are a major benefit of buying these funds. All of the K-1 forms and cost-basis calculations are handled by the fund manager; fund holders simply receive a form 1099 at tax time. You pay taxes on these MLP distributions as you would for any other dividends.

Master Limited Partnership #3 is a closed-end fund that specializes in investing in master limited partnerships. This MLP fund offers the benefit of broad diversification in the MLP industry. In addition, this MLP fund issues a form 1099 at tax time rather than a K-1; this simplifies master limited partnerships’ taxes and allows investors to hold the fund inside a tax-advantaged account with no difficulties.

This MLP fund is a worthy addition to any portfolio. And the MLP fund holds a list of some of our favorite individual master limited partnerships.

Master Limited Partnership #4—
Diversified MLP investment and CO2 leader

Master Limited Partnership #4 is among the largest and oldest master limited partnerships in the country. This MLP has an impressive slate of assets, including refined petroleum products pipelines, natural gas lines, crude oil terminals and gas processing facilities. The operations of midstream master limited partnerships like this one are primarily fee-based businesses; shippers pay the company a demand charge whether or not they actually use their capacity and regardless of energy prices.

This MLP is the leading transporter and marketer of carbon dioxide (CO2) in North America.  The CO2 business of this master limited partnership is basically a series of pipelines to transport carbon dioxide to mature oilfields where it’s used to help re-pressurize the field and produce more oil.

This MLP investment also makes gobs of money based on its major ownership stake in two large and mature Texas oil fields. Management of this master limited partnership says that production volume from the two fields is running more than 1,500 barrels a day above the company’s original plans.

Master Limited Partnership #5—
Small MLP investment with tremendous growth potential

For a more aggressive play on natural gas, consider Master Limited Partnership #5. This MLP is relatively small compared to some other master limited partnerships, but it has significant exposure to gas processing and gathering lines, small diameter pipelines that connect individual wells to the pipeline grid.

By far its most exciting project is the Haynesville Expansion Project that will transport gas out of Louisiana’s prolific Haynesville Shale gas play. The Haynesville is emerging as the lowest-cost and highest potential natural gas play in the US.

This MLP has secured financing for a new pipe to transport gas from the Haynesville region. Management of the master limited partnership believes strong cash flows from the new project will allow it to maintain its yield regardless of the path of commodity prices.

Master Limited Partnership #6—
One of the most stable MLP investments

Master Limited Partnership #6 owns a series of refined products pipelines and crude oil terminals. These are among the most stable businesses a master limited partnership can own.

Refined products pipelines carry petroleum products like gasoline and jet fuel; like all pipelines, revenues are based on volumes transported, not prices. This MLP is actually increasing the tariffs it charges for transport.

This MLP has two major growth projects in the oil-rich state of Texas, both of which will add directly to cash flow. Plus, it has a long history of grinding out consistent distribution increases over time from its low-risk asset base.

More on MLP Investing

Remember, in 2009, an index of MLP investments logged the best one-year gain in its 14-year history, a whopping 77 percent total return! MLPs remain attractively priced and promise outsized returns again in 2010. Don’t be left behind – Get your FREE report today to find out the names of these MLP investments and how you can join in on the profits!

Best wishes for success in your MLP investing,

Roger Conrad

Elliott Gue

Editors, MLP Profits
Contributing Editors, InvestingDaily.com

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