wonder what it would be like to be a partner in a major oil
business? Just think of the stable cash flows you could earn
from the combination of $90 per barrel crude and the world's
insatiable thirst for energy. The idea alone is enough to
excite even the most cautious investor.
But is it possible for small investors to actually partner with a
major oil conglomerate?
The answer is "YES." In fact, it's easier than ever to join
forces with a
major energy firm -- thousands of individuals have already
done so by investing in master limited partnerships (MLPs).
These investors are earning solid yields of up to 12%
while also enjoying significant capital gains -- without having to do anything other
than watch the income roll in.
Not surprisingly, this tremendous profit potential has ignited
strong growth in the MLP market.
In the mid-1990s, master limited
partnerships totaled just $2 billion in market capitalization. Today,
there are literally dozens of actively traded MLPs, and they
boast a total market cap
of about $100 billion. But even though their popularity has
soared, income investors can still find attractively valued MLPs
with rich yields -- if they know where to look.
My name is Carla Pasternak. I'm the editor of High-Yield
Investing, the most widely read income-oriented newsletter in the U.S. In today's volatile markets, I've become a cautious investor, but I'm still greedy when it comes to
searching for securities with enormous dividend yields. As long as we can keep the risk levels low,
I think it's a smart move to capture the double-digit yields that some MLPs are offering us right now.
I remember when Rich Kinder launched one of the earliest MLPs more than a decade ago. Today,
Energy Partners (NYSE: KMP)
is a $10 billion business, operating over 25,000 miles of pipeline and hundreds of terminals throughout the U.S. I've been watching MLPs like Kinder Morgan
for a long time, and from what I've observed, I believe they provide some of the best income opportunities on the market today.
To understand why master limited
partnerships have become so popular, I want to give you a better sense of what they are.
An MLP is a publicly-traded limited partnership. The term
"publicly-traded" is important -- this is not an obscure asset class enjoyed only by a select cadre of wealthy
partners. Instead, MLPs are widely available to individual investors like
you and me. Shares of
ownership (referred to as "units") in an MLP can be bought and
sold on the major exchanges just as easily as common stocks.
Although they operate in a wide variety of industries, most MLPs
are involved in the energy sector, where they own and manage the pipelines and
infrastructure used to transport petroleum and natural gas around the United
States. With energy demand continuing to rise at a steady clip each and
every year, that's a great business to be in.
Thanks to steady demand for these essential commodities, MLPs
generate boatloads of cash, which they then distribute to their
partners. Even better yet, due to their unique corporate
structure, MLPs are not subject to corporate income taxes --
leaving even more cash available for investors.
Performance of the Overall Market
Why have MLPs
gained in popularity so quickly? It may have something to do with their
enticing yields. Or maybe it's their exceptional track record for raising
dividends an average of +8%-9% a year for the past ten years that has
endeared them to income investors. Of course, it could also be the solid
total returns they've delivered over the past decade.
Master limited partnerships have steadily churned out
despite volatile commodity prices. In 2007, MLPs delivered
average total returns of +12.7%, handily beating the S&P 500's
total return of +5.5%. In fact, as you can see in my chart, this
group of about five dozen securities, represented by the
benchmark Alerian MLP
Index, has handily outperformed the S&P for the past several years.
Safe Yields and
-- A Rare Mix
Like real estate investment trusts (REITs), MLPs pay out
most of their cash flow to shareholders. As a result, the
group carries an average yield of about 6.5% -- more than
three times the puny sub-2% yield offered by the average
stock in the S&P 500 Index. And many individual MLPs offer
even greater yields -- up to 12% or more.
But again, their healthy yields are just part of the attraction. Instead, it's the
rare mix of safety and growth that makes MLPs a must-have asset class for
your income portfolio.
Most MLPs process and ship oil and gas, so it's only natural to think they would be affected by
volatile commodity prices. But the reality is far different. Their cash flows depend primarily on
the volume of products shipped through their pipelines -- not on commodity prices. As a result, they offer some of the most stable distributions around.
MLPs that own interstate
pipelines enjoy even safer revenue thanks to government-regulated rates. The
rates they can charge may vary depending on where their pipelines are
located, but one thing is for sure -- their rates are not pegged to
commodity prices. For example, Kinder Morgan,
which operates one of the longest petroleum products
pipeline systems in the U.S., gets the same amount to ship a barrel of
gasoline whether oil prices are $35 or $120 a
U.S. energy demand is expected to grow
at a steady +1% annual clip for the next
20 years, just as it has over the past 20 years. As a result, energy MLPs should
continue to see plenty of demand for their services, allowing them to provide investors
with a growing income stream for years to come.
Growing Institutional Interest
You know an industry is getting hot when major financial institutions start
piling in. For years, MLPs were owned almost exclusively by individual
investors. Institutional investors held less than 5% of these securities.
Now that's changing, and institutions are zeroing in on this once overlooked
sector. A few years ago, mutual funds were given the green light to
hold more MLPs in their portfolios. Congress passed a law allowing funds to
hold up to 25% of their assets in MLPs, whereas previously MLPs could
account for no more than 10% of their assets. Today, more and more
institutions are loading up on MLPs, and several closed-end
funds have been created that focus solely on lucrative master
The long-term picture for MLPs looks brighter than
ever. Demand for energy is unlikely to slow in the U.S. anytime
soon, and many
investors are looking for a stable place to invest while the
current market turmoil ravishes portfolios here and abroad.
Combined, these factors spell high times for MLPs.
If you want to profit from this booming sector, then you should take a look at my newly updated
report -- Pipelines of Profits. (Already a paid
here to read this report now.) This report brings you everything you need to know about master
limited partnerships, including a handy list of 50 of the
largest MLPs and their yields (up to 12%!). And for those investors looking for
even more guidance, I've also included in-depth profiles of three
partnerships that offer the greatest potential for both capital
gains and dividends in the coming
months and years.
Of course, this exclusive report isn't available to
just anyone. In order to access it, you must be a subscriber to my
premium income service -- High-Yield Investing. Subscribe
now and you'll also receive up to five additional
research reports, as well as my
monthly newsletter, and my "High-Yield Stock of the Month" -- a
closed-end fund with a mouth-watering yield of 22.1%.
So for those investors who realize income-producing investments
are the surest way to wealth, I invite you to try my premium
service -- High-Yield Investing.
Visit this link to learn more.
Thanks for joining me on my search for today's
-- Carla Pasternak
Global Dividend Opportunities
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
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