Master Limited Partnerships
Master limited partnership (MLP) investments offer a simple value proposition: tax-advantaged high yields and strong recession-resistant growth potential.
MLPs allow investors to defer much of their personal income tax liability for years into the future or, in many cases, indefinitely. Unlike regular corporations, a master limited partnership doesn’t pay traditional corporate-level tax. Instead, these partnerships pass through the majority of their income to investors in the form of regular quarterly distributions. In other words, 80 to 90 percent of the distribution you receive from the MLP is tax-deferred.
Learn more about how to add master limited partnerships to your portfolio with the latest in-depth analysis in the archive below. For a detailed understanding of the MLPs, including what they do, how they are taxed and the best plays to consider for your portfolio, check out our free guide: MLPs: High Yields and Low Taxes.
The industry benchmark Alerian MLP Index slipped in May but hit fresh 52-week highs in July, and the Alerian MLP Total Return Index--which includes reinvested dividends--has touched new all-time highs. But energy-focused don't appear overvalued: MLPs offer an attractive yield relative to historical norms and compared to other income-producing groups.
Master limited partnerships are usually considered stable, income-focused investments. But our favorites have been strongly outperforming the typical S&P 500 stock on price as well.
Our new Aggressive Portfolio recommendation is a leveraged play on a midstream natural gas business with extensive coal interests.
Conservative Holding Enterprise Products Partners LP’s (NYSE: EPD) exposure to the Gulf of Mexico will have little impact on results. The inevitable trend toward onshore exploration and production will actually help the company.
The need to build out infrastructure to support onshore US unconventional gas, NGLs and oil production will drive growth for energy-focused master limited partnerships. The Macondo disaster will accelerate efforts to boost onshore output, outweighing any negative impacts from lower production volumes in the Gulf of Mexico.
A fear-driven selloff offers a golden opportunity to lock in high, tax-advantaged yields from fast-growing master limited partnerships.
Over the past year energy-focused MLPs have become more popular for the very same reasons as in the mid-1980s: high yields and tax advantages. Forget yields--focus on fundamentals when making your investment decisions.
MLPs haven’t been spared in this selloff. But a history of rising distributions and prospects for future growth make our Portfolio holdings compelling buys right now.
Master limited partnerships continue to enjoy access to capital at favorable terms--a key to growing distributions.
Don't use stop-losses to manage your MLP positions. Last week demonstrates that a little discretion amid chaos will lead to longer-term profits.