Income Investing: Energy MLPs

Income Investing: Energy MLPs


As a firm that believes in the value of Income Investing, we’ve previously discussed some of the types of investments you can make to stay on top of your game and ensure that you have a strong nest egg as you approach retirement. In 2013, we see the outlook for Energy MLPs to be one area of high regard when it comes to income investing opportunities. The vast majority of MLPs are pipeline businesses with relatively stable income from the transport of oil and natural gas. Specifically, Energy MLPs are defined as owning energy infrastructure in the U.S. which includes natural gas, oil, gasoline, pipelines, storage, terminals, and processing plants.

With this opportunity on the horizon, we thought it would be useful for our clients and readers to hear about the top 3 benefits of income investing in an Energy MLP.


Benefit #1: Tax Advantages

MLPs are traded on major stock exchanges like stocks, but they aren’t taxed the same. The tax structure for MLPs allows profit to flow through the partnership, straight to the unit holder, untaxed. The unit holder is then required to pay taxes on his share of the MLP’s income. In the end, this can mean a little extra paperwork for investors but it can also be well worth it.


Benefit #2: High Paying Yields

According to many sources, most MLPs are paying distributions around 5% – 9% distribution yields. This is a highly attractive opportunity to investors who want a steady portfolio to grow over a period of years. Also, in comparison to other utility stocks, MLPs often provide a higher yield overall and they are required to pay out at least 90% of their returns in distributions to shareholders.


Benefit #3: Safer Investment

Since the election in November, volatility has increased in the marketplace. Nevertheless, when it comes to Energy MLPs, it’s a small space and any government changes to the tax code will have a minor impact on Energy MLP payouts.


Tip to remember: We just discussed the benefits to you, but investing in Energy MLPs can become complicated depending on how your portfolio is set up. We recommend that you schedule a free consultation with a registered investment advisor so that he/she can give you a full overview of funds that would best benefit your individual scenario and the tax advantages.



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