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Upside for G&P MLPs

By Elliott H. Gue on October 9, 2009

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Ronald Reagan

In 1986 Ronald Reagan gave investors a money-making tool so powerful that it's still minting millionaires today.

And it’s easy to join them.

(How do 89.6% average returns sound to you?)

Ronald Wilson Reagan.

You know he outfoxed the Soviets and won the Cold War...

You know he ended the stagflation-plagued Carter recession...

You know he launched an economic boom and bull market that lasted nearly 20 years...

But did you know Ronald Reagan gave investors a powerful, tax-advantaged tool that still works wonders today to build wealth and ensure golden retirements?

Let me take you back to...

October 22, 1986: An historic day for investors

On a mild, sunny autumn afternoon on the South Lawn of the White House, President Ronald Reagan signed the Tax Reform Act of 1986.

Vintage Reagan, the law produced a simpler tax code with fewer tax shelters and preferences, as well as significantly lower rates benefiting every family and business in America.

But there was more to the law than tax cuts. Much more.

Buried deep in the document was a “modification” that some have since come to call an “accidental loophole.”

Others, of a conspiratorial frame of mind, term it a “secret gift to investors.”

I prefer to believe the crafty President Reagan and his pro-investing, supply-side advisors knew precisely what they were doing.

To put it bluntly...

The Reagan team fully intended to encourage the development of domestic energy resources—and inspire investors to join the party by cleverly enhancing a new kind of investment.

Anything wrong with that? Not from where I stand.

What happened next was unprecedented.

Ronald Reagan Tax Reform Act

In effect, Reagan’s new tax law exempted a small group of unique companies—called Master Limited Partnerships (MLPs)—from corporate taxes.

Repeat: exempted them from corporate taxes.

I can hear you thinking: Who else but the Gipper would be so bold?

To this day, MLPs pay NO corporate tax—in a country with the highest corporate tax rate in the world. Hard to believe, I know. But it’s true.

And a 0% tax rate isn’t the only advantage to MLPs. For example, MLPs let you...

… be a partner in a company, with all of the benefits—but none of the work or headaches.

Is such a sweet setup really possible? With MLPs—YES!

When you buy an MLP, you become a partner. But one who doesn’t have to show up to work, attend meetings, pay taxes or any of the other time-consuming duties of a conventional partner.

But you DO get paid—and very well at that.

You see, MLPs, unlike regular corporations, pass 80% to 90% of their income to their partners (as an investor, you’re a partner), and you pay taxes only when you decide to sell.

Do you know any other investing arrangement where companies can direct a flow of profits directly to their investors?

Hang on, it gets even better.

When you buy into an MLP, you can often defer your personal income tax liability on your returns for as long you like—years, decades... even forever.

It's good to be treated like an owner…

You enjoy profits passed directly to you by law. You’re also protected against greedy managers because of the way MLPs are structured and incentivized.

Have you ever bought a stock, watched it sink, then read in the papers how the miserable, incompetent failure of a CEO hauled in a 7-figure bonus... blunders notwithstanding?

That just doesn't happen with MLPs.

When you own an MLP, your interests are exactly the same as those of the people running the show—because you’re all owners.

In fact, management has a genuine incentive to run their operation as profitably as possible. If the MLP loses money, they lose money.

Don’t you wish it worked that way with the stocks you own? We’d see a whole lot more hard-working and motivated C-level execs if they took it on the chin the same as you did when a stock dropped.

Build a millionaire retirement portfolio with MLP Profits

MLP Profits is the world’s only financial advisory 100% focused on helping investors safely build income and wealth from these underestimated securities.

As President Reagan and his advisors clearly intended, the tax breaks they gave MLPs were aimed at boosting the energy sector.

So it’s no surprise that many of the MLPs we recommend in MLP Profits are the strongest plays you’ll find in the energy patch: energy-services companies.

These outfits do the essential work of connecting oil and gas producers to refineries, distribution centers and marketing outlets.

In other words, we invest in companies with locked-in fees and contracts. That way we have almost no exposure to price-sensitive commodities themselves.

These are the most reliable cash cows in the energy field, even in the 2008 crash, many energy-related MLPs maintained their distributions, overcoming frozen capital markets and plummeting oil and gas prices.

The MLPs we buy are NOT oil or gas producers. They are supply-chain processors of oil, gas and lucrative natural gas liquids (NGLs).

That means our picks are insulated against the price swings that make oil and gas production stocks so unpredictable and nerve-wracking.

That’s why our recommendations are so stable. Our picks don’t produce energy. Instead they are the essential “middlemen” who collect lucrative toll fees from the producers.

Look through our portfolio and you’ll see pipeline operators, storage managers, import/export terminals, distributors, processors, transporters and shippers who handle and move the product once it’s out of the ground.

Oil and gas prices will rise and fall (as they always do), but these service businesses continue doing their jobs and collecting their fees like clockwork. Best of all, many of these outfits have long-term contracts guaranteeing their fees under any and all price circumstances.

Little wonder our MLP Profits portfolio is blowing away just about every other investment you can name.

Average return in our portfolios: 89.6%

Right this minute, the average total return of the MLPs in our three portfolios is 89.6%—and their average yield stands at 5.62%.

And that’s just the average. You could cherry-pick the highest yielders we come across and start earning 11.3% on your money right away. Imagine what steady income like that could do for your retirement plans.

Here are some of the MLPs in our portfolios right now. The gains and yields here are current, and we expect them to move even higher in the weeks and months ahead...

  • 231% in marine LNG transport—current yield 9.08%
  • 409% in midstream energy assets—current yield 3.36%
  • 231% in midstream petroleum products—current yield 5.5%
  • 356% in oil and gas midstream services—current yield 3.9%
  • 260% in pipeline operations—current yield 4.0%
  • 204% in gas gathering and processing—current yield 7.0%
  • 130% in midstream gas and NGLs—current yield 2.41%
  • 111% in gas and petroleum products—current yield 6.0%

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I think you’ll quickly see investing in these unique high-yield-plus-strong-capital-gains vehicles can earn you substantially more income in the coming years than you’d ever make in conventional stocks and funds.

Remember, the average total return of the MLPs in our three portfolios is an impressive 89.6%—and their average yield stands at 5.62%.

MLP Profits is a web-based advisory service covering every single MLP trading on the major exchanges. Log on and you’ll find...

  • Viewpoint. Offering an in-depth look at a timely partnership opportunity or market events you need to know about. Also keeps you up to speed on every market event that matters in the MLP sector.
  • Conservative MLP Spotlight. Here you’ll find a full breakdown of the most reliable partnerships for long-term, worry-free wealth-building. You can buy these steady performers and forget about them for a long time.
  • Growth MLP Spotlight. We’re constantly scouring the market for MLPs delivering high yields combined with sleep-like-a-baby safety. Each month we highlight our latest finds—the gems yielding 7%, 10%, sometimes 12% or more. Buy them now and they're likely to shower you with rising income and share prices for years to come.
  • Aggressive MLP Spotlight. If you relish taking on a bit more risk, go for these newer, more speculative MLPs. They're strictly for your “play money.” But many of our readers find them irresistible because of their potential to take-off.
  • Three Model Portfolios—for every risk profile, from conservative to growth to aggressive. You can follow them exactly or use them to customize a portfolio with the right mix for you. Plus, we carefully track our recommendations so you see exactly how they perform.
  • “How They Rate” Table. We rate every MLP on the major exchanges as a buy, sell or hold. You can assess the entire field at a glance. You’ll find current price and yield, plus our proprietary safety rating—which ranks the reliability of every MLP’s distribution.
  • Access to Our Full Archives. You can find every article, piece of advice and analysis we have ever published—just as if you had subscribed from our very first issue.
  • Live Reader Chat Sessions. Every other month, we sit down for a few hours to answer your questions in detail. Whether it’s broad energy trends or which MLPs we like best at the moment, nothing is off limits in these interactive free-for-all sessions.
  • MLP Investment Insider E-zine. This informative twice monthly bonus analyzes emerging developments in the MLP sector and relays news updates on portfolio holdings.

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Normally, the package of investor services MLP Profits delivers costs $697 a year.

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Sincerely,

Phil Ash

Phil Ash
Publisher, MLP Profits
Investing Daily
7600A Leesburg Pike
West Building, Suite 300
Falls Church, VA 22043

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