WASHINGTON, May 13, 2013 /PRNewswire/ -- Master limited partnerships (MLP) have been one of the top-performing security classes in the stock market over the past three years and in 2013. But retail investors who focus on the highest-yielding MLPs may unwittingly expose themselves to unnecessary risks.
In general, the outlook for publicly traded partnerships that own energy infrastructure remains bullish. These traditional MLPs stand to benefit from rising demand for additional pipelines and other midstream capacity to support the US shale oil and gas revolution.
The Federal Reserve's commitment to keeping interest rates near zero has also been a boon for this security class. With bank certificates of deposit, US Treasury bills and many corporate bonds offering piddling current returns, investors have stampeded into dividend-paying equities with abandon, especially securities that offer above-average yields.
Within the pantheon of dividend-paying stocks, MLPs historically have offered higher yields relative to utilities and real estate investment trusts (REIT). The Alerian MLP Index, a capitalization-weighted basket of 50 energy-focused MLPs, yields 5.3%, whereas the Philadelphia Stock Exchange Utility Index sports a current return of 3.9% and the Bloomberg North American REIT Index yields 3.2 percent.
"The appeal of MLPs to the average investor is simple: high yields and low taxes," says Roger Conrad, co-founder of Energy & Income Advisor. "Unfortunately, some investors focus on these qualities exclusively and ignore the heath of the underlying business."
Elliott Gue echoed this sentiment, citing Navios Maritime Partners LP (NMM) as a high-yielding MLP that investors would do well to avoid. "A lot of retail investors like Navios Maritime Partners for its double-digit yield," says Gue. "But they have no idea that the MLP faces a wave of charter expirations on its fleet of dry-bulk tankers in 2014 that will make it difficult to maintain its distribution."
Gue prefers an alternative strategy that focuses on the partnership's ability to grow its distribution. "Although many investors make the mistake of buying the highest yields in this environment, we like names that are best-positioned to generate superior distribution growth--a critical driver of MLP performance."
Conrad says that the rationale behind this preference is simple: "Rising quarterly payouts translate into faster price appreciation and higher total returns."
Elliott Gue and Roger Conrad to Host Webinar about Investing in Master Limited Partnerships
Energy experts Elliott Gue and Roger Conrad will host an exclusive webinar about the promise and pitfalls of investing in master limited partnerships (MLP) at 2 p.m. EDT, on May 29 (http://www.anymeeting.com/AccountManager/RegEv.aspx?PIID=E955D98689473F). This event will include a Q-and-A portion during which Gue and Conrad will answer questions about the more than 90 energy-focused MLPs that they cover in their coverage universe.
Elliott Gue knows energy. His knowledge of the energy sector and prescient investment calls prompted the official program of the 2008 G-8 Summit in Tokyo to call him "the world's leading energy strategist." In October 2012, Elliott Gue launched the Energy & Income Advisor (https://www.EnergyandIncomeAdvisor.com), a twice-monthly online newsletter that's dedicated to uncovering the most profitable opportunities in the energy sector, from growth stocks to high-yielding master limited partnerships.
Roger Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. The founder and former editor of Canadian Edge, MLP Profits and Utility Forecaster, Conrad built a reputation for providing high-quality investment research and analysis. On April 27, 2013, he joined his long-time friend and colleague, Elliott Gue, as co-editor Energy & Income Advisor.
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SOURCE Energy & Income Advisor