"Master" Your Limited Partnership
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Currently, Master Limited Partnerships (MLP's) are all the rage--and for good reason. Arguably, a sound alternative to bonds, MLP's provide steady income with potential for significant and meaningful capital gains. However, MLP's are not without risk and they're certainly not for every investor. That being said, several companies offering monster dividends certainly got my attention and should probably get yours. So let's take a look at some MLP's.
First, is Linn Energy (NASDAQ: LINE). Currently, LINE throws off a 7.9% tax-advantaged distribution to its shareholders, but as with all MLP's there are typically extensive tax-reporting requirements and as such bears careful consideration. So, what's the alternative? Well, you're in luck. Linn Company (NASDAQ: LNCO), a derivative of its parent company Linn Energy, recently had its IPO and raised roughly 1.1B in capital. The advantage to investors, LNCO declares regular quarterly dividends in lieu of distributions, which may be documented typically on an investor's 1099, thus avoiding typically complex reporting requirements. Also, unlike LINN is currently throwing off 7.7% dividend is passive tax-advantaged income.
So, let's look at some other classic MLP's. For the sake of our analysis we'll examine, two (2) other stocks. The fist of among these is Enterprise Product Partners (NYSE: EPD), like LINE and LNCO, this is an energy pipeline company. Right now, EPD is sporting a hefty 5.2% dividend. Much like LINE, the income reporting requirements are complex, but EPD's nice dividend (distribution) reivestment plan could very well sweeten, an otherwise complicated deal. Much like my other recently-written post, EPD offers a periodic 5% discount, not on dividends, but direct (addition) purchases, which is outstanding in my estimation.
Last, we'll highlight Energy Transfer Partners (NYSE: ETP). Similar to LINN, LNCO, and EPD, this is again an energy transport company with a very attractive dividend, currently pegged at 8.2%. Again, this deal gets better. Like EPD, ETP sweetens the pot with, this time with a 5% discount on reivested distibutions. But again, there are tax headaches involved. However, all and all each one of these companies has a fairly simple business model, essentially getting energy from point A to point B, which is quite a profitable business, and likewise investors. (and rightfully so) are rewarded as stakeholders in the company.
While MLP's are not for everyone, they may indeed be suitable investments congruent to those looking for bond-like payouts, potential upside, and relatively secure income suitable for a long-term investment opportunity. In sum, one should do their own research when it comes to any stock, but knowing what options are available, can only serve to provide windows of opportunity amidst otherwise uncertain economic times.
These are just a few! There are even more MLP stocks. While, no stock is a sure thing, each one has its advantages and disadvantages and must be carefully weighed prior and during investment. But some MLP's are a lot better quality than others. By examining each opportunity carefully, you'll go a long way toward improving your investing skills and learning how to separate out the most attractive investments, master limited partnership, or otherwise, from the rest.
This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact. dmercer1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Enterprise Products Partners L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!