MLPs are amazing investments because they have high dividends, they grow them like crazy, they are stable cash flows, little commodity risks as they are essentially a toll road charging by the barrels transported, and if things were to suck, they have long term commitment contracts with minimum payments required, lastly and most imporantly there is a lot of M&A with parent companies doing a lot of accretive dropdowns since the market has decided that MLPs deserve a high multiple. You miss some additional tax benefits when you purchase MLPs through ETFs. MLPs open up a way to defer taxes, reduce dividend taxes, and perhaps even avoid capital gains taxes when older peeps pass away (gotta love that step up basis). But then again, its understandable, its prolly a better idea to index if you have no idea what you are doing, you will still benefit from a good industry overall as we have a ton of shale in US for unconventional plays. Very likely we will be exporting this crap soon as the difference in price between different continents are huge.
Long story short: Energy companies make bank, investors make bank, ibankers make bank, usa loses on tax but gets more jobs and loses dependence on oil countries, and consumers get cheaper bountiful gas/oil. so net everything, everyone wins.
^ This is very true. I had the privledge of meeting Edward Cohen recently and he believes MLP’s are still in the early stages of a long profitable period of growth. The energy potential is just massive and the US is still coming to the realization of it’s potential. We have so much infrastructure to build, drilling to do and exporting that the opportunities are seemingly endless. It is noteworthy, however, that upstream MLP’s have much more commodity price risk than midstream MLP’s, and you should know the difference in strategy before investing. Each MLP may hedge differently and have different exposures to the underlying commodity.
Those who are new to MLP’s should understand also how the taxation works. Basically US energy was pathetic for the longest time, so the government created extremely favorable tax structures to incentivise investment. Now, seemingly out of nowhere, the US is the place to be when looking to energy investment. So not only do you have great fundamental growth and positive cash flow, but you’re doing so in a very favorable tax structure.
I’m actually looking into purchasing their fund now. TORIX is the institutional class of shares for that specific fund, but I’m looking at TORTX. A few of their other funds look good as well. I’ve liked what I’ve seen so far, but still haven’t read all the materials. I may go long within the next week or so. I think I may go long TORTX and then an ETN like AMJ
I really did it but I’m talking about my personal account. I held AMJ for a few months and almost pulled the trigger on Steelpath, but both of them are too conservative for my tastes. I decided to do my own due diligence and found a small group of players - mainly suppliers to various fracking endevours - and bought those instead. It’s been a little over a year and purely buy-and-hold so commissions don’t come into it. I’ve been pleased with the results so far.
I agree with Husker on the E&P MLP’s, such as Linn Energy. Linn has a trailing dividend yield of 9.5%, but its internally generated cash flows in no way justify such a yield. The E&P industry in the US regarding production from shale formations is tremendously capital intensive, and very few E&P’s can actually generate positive cash flow. The nature of drilling from shale formations leads to very high production declines after a well’s first year of production, so E&P’s have to continue investing more capital to keep production up. These E&P MLP’s have to borrow to fund all of their dividend distributions (look at ther cash flow statements), which is kind of silly. E&P MLP’s is an oxymoron.
Regarding the midstream industry, the long-haul pipelines are safe investments w/ no direct commodity price risk for the most part, but there definitely is commodity price risk for the midstream companies involved in natural gas gathering and processing, which most of them are. Their profitability is closely tied to the spread between natural gas (input cost) and natural gas liquids like butane, ethane, etc (output) and this spread can fluctuate quite a bit so there IS commodity price risk.
MLP’s are nice yielding investments and there is growth in this industry. E&P comapnies NEED these midstream companies to still make investments in pipelines, processing facilities or else they can’t get the gas/NGLs/crude oil to market.
I like the guy that suggested PFF (iShares Preferred Stock Index) on searching for yield. It’s obviously got interest rate risk, but its more stable than a MLP index and it’s a nice fund.