The current yield on a 10-year US government bond stands at less than 2 percent, and BBB- rated corporate debt yields just over 4 percent. There’s only one guarantee for investors in many fixed-income products: You will lose money. The interest rates offered by savings accounts and certificates of deposit won’t keep pace with inflation. Even Italy’s 10-year sovereign bonds yield a paltry 5.19 percent.

Relative to the yields offered by traditional fixed-income investments, the Alerian MLP Index’s 5.56 percent yield appears downright magnanimous, especially when you consider that real estate investment trusts (REIT), as measured by the Bloomberg North American REIT Index, yields only 3.48 percent.

Source: Bloomberg

At the same time, the yield offered by the MLP benchmark has tumbled from its 12-month high of 7.39 percent (hit on Aug. 8, 2011) after appreciating almost 15 percent in value. Although investors who were along for the ride will be pleased by these gains, those looking to add money to the sector may be disappointed by prevailing yields.

Indeed, excluding the MLPs added to the model Portfolios in this issue, only nine of our 19 holdings trade below our buy targets. All six stocks in the Conservative Portfolio trade above our buy targets, while all six stocks in the Aggressive Portfolio trade below our buy targets.

As we noted in the February issue and in recent Flash Alerts, investors sitting on big gains in our Conservative Portfolio holdings should consider taking some profits off the table. Consider reallocating some of these proceeds to the names in our Aggressive Portfolio or keep this powder dry for a correction in the broader market.

In this environment, some may be tempted to invest in speculative fare to lock in a higher yield. Investors should look both ways before crossing the 8 percent yield threshold and consider the potential upside and downside. All too often, higher-yielding securities entail significantly higher risks.

Within the model Portfolios, aggressive investors seeking higher yields should consider new Portfolio holding Mid-Con Energy Partners LP (NSDQ: MCEP), dry-bulk shipper Navios Maritime Partners LP (NYSE: NMM) /mlp-profits/articles/7363/crunching-the-numbers#NAVIOS, Penn Virginia Resource Partners LP (NYSE: PVR) and upstream operator Vanguard Natural Resources LLC (NYSE: VNR) /articles/19757/vanguard-natural-resources-llc-nyse-vnr.

For the yield curious, here’s an in-depth analysis of the five highest-yielding MLPs in our How They Rate universe.

The High-Yield Club

1. Oxford Resource Partners LP (NYSE: OXF) – 19.1 Percent Yield

Oxford Resource Partners LP owns almost 94 million tons of coal reserves in the Illinois Basin and Northern Appalachia (NAPP). The MLP primarily produces thermal coal, the type that’s burned in power plants.

Unlike Aggressive Portfolio holding Penn Virginia Resource Partners, Oxford Resource Partners operates a hybrid model, mining some coal and leasing out a handful of its properties in exchange for royalties.

The MLP’s third-quarter distributable cash flow (DCF) covered only 80 percent of the payout on the common units, but fourth-quarter results were even worse: Oxford Resource Partners generated only $0.2 million in DCF, which covered only 5 percent of the MLP’s distribution on its common unit. To meet the distribution, the MLP would have needed to borrow about $9 million from the $27.5 million in borrowing capacity available on its recently expanded credit facility.

For the year, the MLP generated DCF of $8.2 million, which covered only 21.1 percent of the payout due to holders of the common units.

The company attributed these disappointing results to a litany of factors, including weather-related disruptions, permitting delays, rising fuel costs and supplier performance.

On a positive note, management expects revenue to increase after the first quarter of 2012, when several low-priced legacy contracts will be replaced by agreements that feature higher prices. That being said, management also indicated that costs were expected to be 2 percent to 4 percent higher in the coming year.

Faced with shrinking liquidity, rising costs and the uncertainty of an oversupplied coal market after an unseasonably warm summer, Oxford Resource Partners could disappoint once again in 2012. Management may have refused to forecast the MLP’s first-quarter and full-year distribution during its conference call to discuss fourth-quarter earnings, but a distribution cut appears inevitable at this point.

We’re downgrading Oxford Resource Partners to a sell, though we’ll pay close attention to its results for the second quarter of 2012, which management expects will include the full benefit of re-priced contracts.

2. Inergy LP (NYSE: NRGY) – 16 Percent Yield

Units of former Growth Portfolio holding Inergy LP, which owns a propane distribution business and midstream infrastructure for natural gas and natural gas liquids (NGL), gave up about 22 percent after the firm issued a press release disclosing that cash flow covered only 68 percent of the distribution for the 12 months ended Dec. 31, 2011.

Although the embattled MLP didn’t slash its distribution covering its fiscal first quarter (disbursed on Feb. 14), a press release announcing fourth-quarter earnings noted that “management and the board of directors of Inergy are evaluating a reset of the quarterly distribution to a level that is supportable by the cash flow expected to be generated from Inergy’s businesses in the near term.”

During a conference call to discuss these results, management noted gross profits generated by the MLP’s propane distribution business tumbled 27 percent from year-ago levels, to $97.2 million. This operating segment suffered a double whammy: Not only did rising wholesale propane prices weigh on sales volumes and pinch profit margins, but an unseasonably warm winter has also made it easier for customers to reduce consumption. Management attributed 55 percent of this decline to lower volumes, while thinner margins accounted for the remaining 45 percent.

In the aftermath of this historically challenging quarter, Inergy raised $372.7 million from the initial public offering of its Northeast gas storage and transportation business as Growth Portfolio holding Inergy Midstream LP (NYSE: NRGM). The partnership used the proceeds to pay off the $300 million balance on Inergy LP’s term loan facility, extend a tender offer on $94.2 million worth of 2015 senior notes and repurchase about $150 million of the $750 million in outstanding 2021 senior notes.

During the conference call, management also indicated that Inergy would likely drop down its US Salt business, a solution mining outfit that creates caverns suitable for storing natural gas or natural gas liquids (NGL), to Inergy Midstream this year. Such a transaction would be structured to be immediately accretive to Inergy Midstream’s distributable cash flow, and the parent would use the proceeds to reduce its debt burden further.

Management also hinted that the firm would likely take all the pain at once with the coming distribution cut, as opposed to taking a moderate approach. Although we regard this winter’s weather-related challenges as an outlier, the cyclicality of Inergy’s propane business and management’s focus on paying down debt should limit distribution growth in coming quarters.

Inergy LP continues to rate a sell. 

3. Niska Gas Storage Partners LLC (NYSE: NKA) – 14.8 Percent Yield

Niska Gas Storage Partners LLC owns 204.5 billion cubic feet (bcf) of natural gas-storage in the US and Canada, making the MLP one of the largest independent owners of these assets in North America. The majority of these facilities are located near major pipeline hubs, and gas in these facilities can be marketed to a large number of potential buyers.

Demand for storage capacity hinges on the summer-winter spread in natural gas prices. Traders often purchase inexpensive gas during the spring and summer (periods of relatively weak demand), and sell these inventories for higher prices in the winter (a period of higher demand and inventory withdrawals).

However, the glut of production from the nation’s prolific shale gas plays has eroded the winter-summer spread and potential profits, reducing the need for storage and the rates Niska Gas Storage Partners is able to achieve under new contracts. Management continues to make progress toward increasing the proportion of the MLP’s capacity secured under long-term contracts to 60 percent from 55 percent.

In fiscal third quarter ended Dec. 31, 2011, the Niska Gas Storage Partners’ cash available for distribution came in at negative $7.8 million, prompting management to suspend the payout on the subordinated units for the second consecutive quarter. Holders of the common units received the current quarterly distribution of $0.35.

Management’s guidance for the fiscal year ended March 31, 2012, calls for adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of between $125 and $135 million and cash available for distribution of $52 million to $62 million, which would amount to a payout coverage ratio of about 1.06 to 1.

Nevertheless, the likelihood of a distribution cut continues to increase. During a conference call to discuss third-quarter earnings, management emphasized that the board would review the common distribution every three months and noted that market conditions were expected to remain challenging.

The company’s hefty debt burden likewise presents difficulties. Niska Gas Storage Partners completed about $110 million of a planned $200 million in inventory sales during its fiscal third quarter, using the proceeds to reduce the value of outstanding senior notes to $659 million. Management has stepped up these repurchases to prevent the firm from breaching its debt covenants.

Assuming that the Niska Gas Storage Partners meets its full-year guidance for adjusted EBITDA, management expects the fixed-charge coverage ratio (FCCR) should come in between 1.75 to 1 and 2 to 1. When the FCCR dips to less than 1.75 to 1, the MLP faces restrictions on its ability to pay the distribution.

With a thin margin of error and an equity issue and distribution cut likely in the cards, Niska Gas Storage Partners LLC continues to rate a sell.

4. Capital Product Partners LP (NSDQ: CPLP) – 12.4 Percent

At the height of the financial crisis and Great Recession, tanker companies struggled to cope with the evaporation of short-term financing and a precipitous decline in global oil demand.

The economic recovery has brought little relief for tanker companies with substantial exposure to the spot market, where vessels are available for short-term leases. Tanker owners that took on substantial leverage to purchase new vessels from shipyards also face an uphill battle to break even on their investments.

Although US oil demand has recover from its recessionary nadir and consumption in China and other emerging markets has increased markedly, an oversupply of tankers has kept the day-rates that customers pay to lease these vessels at depressed levels.

For the most part, the tanker industry’s hard times are its own doing: Tanker capacity has swamped demand for oil shipments. The roots of this overhang trace back to the last bull market for oil and product tankers, when many operators ordered new vessels from shipyards based on overzealous assumptions about demand trends.

For several quarters, analysts and management teams have highlighted the potential for a recovery in the market for product tankers, citing a 2012 order book that’s only 11 percent of the current fleet and a slight uptick in day rates during the fourth quarter, a period of traditional strength. In 2011 the number of ships contracted under time charters increased by roughly 65 percent from year-ago levels, suggesting that the market has begun to stabilize.

Conditions in the product-tanker market have improved, but the jury is out on whether 2012 will bring a meaningful recovery. In the intermediate term, new refining capacity in Africa, the Middle East and the Asia-Pacific region should boost demand on long-haul routes.

 That being said, after the horror show of the past few years, any signs of stability are a welcome improvement.

Meanwhile, a recovery in the oil tanker market appears at least two years away.

The ongoing decline in ship values, a lack of financing and oversupplied market resulted in 20 of an expected 79 new very large crude carriers and 21 of an expected 74 new Suezmax tankers not being delivered in 2011. Although order slippage should continue, the number of new oil tankers slated for delivery in 2012 amounts to about 20 percent of the existing fleet.

Despite the enthusiasm of some analysts and an uptick in scrapings of double-hulled tankers with more than 15 years at sea, we wouldn’t bet on an impending recovery in the market for oil tankers–the supply overhang should persist for some time.

Originally a pure play on the product tankers market, Greece-based Capital Product Partners in June 2011 augmented its fleet of 18 medium-range product tankers and two small product carriers with the purchase of a dry-bulk carrier from its sponsor, Capital Maritime and Trading Corp. This vessel, the M/V Cape Agamemnon, is booked under a 10-year contract to Cosco Bulk Carrier Co. that guarantees a day rate of about $42,000.

At the end of September, Capital Product Partners closed its acquisition of Crude Carriers Corp, which added two VLCCs and four Suezmax oil tankers to its fleet. Capital Maritime and Trading promptly stepped in to book five of these six vessels under charters that expire in the fourth quarter of 2012. Capital Product Partners’ sponsor is paying slightly above-market rates on these tankers to support the MLP’s distribution.

The charters for the VLCCs and two of the Suezmax-class vessels also include 50-50 profit-sharing agreements, providing additional upside. Capital Maritime and Trading has the option to extend these fixtures at incrementally higher rates in each of the next two years. The 50-50 earnings split will also carry over.

During a conference call to discuss fourth-quarter earnings, management indicated that the one Suezmax vessel in the spot market would likely be booked under a time charter within the next few months. We wouldn’t be surprised if Capital Maritime and Trading stepped up to the plate once again.

Although the welcome support of its sponsor has helped insulate Capital Product Partners from the worst that the market for oil and product tankers has dished out, the MLP faces a major financial challenge: The potential expiration of an amortization-free period on its debt.

With the approval of its creditors, Capital Product Partners could push off amortization for up to three years. If these negotiations break down, the firm would face a quarterly payment of $9.1 million that would begin the second half of 2012. Failure to extend this amortization-free period could result in a distribution cut.

Although we prefer Navios Maritime Partners as a high-yield play on seaborne shipping, Capital Product Partners rates a hold for aggressive investors who already own the stock and are willing to bet that the MLP’s negotiations with its lenders will succeed.

5. Ferrellgas Partners LP (NYSE: FGP) – 10.9 Percent Yield

Ferrellgas Partners LP won’t report results for its fiscal second quarter ended Jan. 31, 2012, until early to mid-March. Nevertheless, the results should be fairly easy to predict: Like Inergy LP, the propane MLP faces the challenge of elevated propane prices and an unseasonably warm winter that sapped demand.

During the 12 months ended Oct. 31, 2012, FerrellGas Partners LP generated distributable cash flow of $103 million, enough to cover only 68 percent of the $151.9 million that the MLP disbursed to unitholders.

Management maintained the MLP’s distribution for the second quarter, but the headwinds that buffeted the propane distribution market this winter will weigh heavily on results.

A heavy debt load and challenging operating conditions make FerrellGas Partners LP a sell.