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.