When I read and hear people complaining about getting a miserable 2 percent on their money and struggling to find a livable cash return on their income portfolio, I wonder why they don’t add Master Limited Partnerships that are yielding on average 8 percent. Here is the good and the bad:
First the good: as I just stated, the average yield is about 8 percent and the dividends on most MLPs have risen every year for the last three decades. Not only is it rising, but the dividend is about 80 percent tax sheltered on average, varying for the different MLPs. The investment is in America’s energy infrastructure so it has no foreign competition. The business is composed of hundreds of thousands of miles of pipelines, along with storage facilities, processors, and other related businesses. It is an investment in the management of the fuel that runs America. It provides reliable steady income and this should be no surprise.
Now the bad news: Today the prices of MLPs have been wildly volatile. The whole sector has traded as if it were a biotech stock. It all depended on the price of oil. And over the last year, some actually eliminated their dividends and some went bankrupt. And those MLPs gave the whole sector a huge black eye. In 1991, MLPs were businesses engaged in the transportation business (pipelines.) Today, there are MLPs that drill for oil and dig up sand for fracking. The oil drillers have gone bankrupt and investors lost almost all of their money.
DeWitt Capital Management invests in the companies that manage the throughput. So whether the price of oil was up or down, we still had to move oil and gas and get it to the consumer. Did you stop driving your car when oil was cheap? Did jets stop flying? Did the 18-wheeler pull off the road? No, there is still energy demand and so the MLPs managing the throughput keep paying out dividends.
An MLP portfolio can be designed for people at various stages of life. Pre-retirement, post retirement, and later retirement portfolios can be crafted for every need at every stage of life. Someone who is still working but looking for more capital appreciation could invest in a professionally selected portfolio of MLPs that could potentially raise their distributions quickly and thereby drive the price of those MLPs quickly. By the time the investor reaches retirement age, the portfolio should be paying out rising income at a higher level.
An investor who has recently retired and who is invested in a portfolio of low yielding municipal bonds or government bonds and stocks, could switch part of their portfolio to higher yielding MLPs that have the ability to raise distributions over time. Because of the tax deferred nature of those distributions, their tax could be lowered while at the same time, have spendable income increased.
Someone further on in life may want to spend more time with the grandkids and family members at a vacation home or engage in travel. However, the yields on government bonds and municipals being as low as they are could cause some discomfort. The solution: Invest in a portfolio of high yielding and conservative MLPs that provide high income with most of the income tax sheltered. The retiree can enjoy years of tax sheltered income, enjoying time with their friends, family and grandchildren. When the client passes these MLPs onto their children, the deferred tax bill is eliminated.
After 25 years of investing and tracking Master Limited Partnerships, DeWitt Capital knows the MLP world inside and out. We can build an MLP portfolio to suit each individual at every stage of life. See what you and your clients are missing by not investing in America’s energy infrastructure!
The business of America’s energy infrastructure is not subject to competitive threats from overseas and will not be outsourced to China! It is everywhere around you, operated by Americans, and keeps America moving. This sector belongs in everyone’s portfolio.