The overarching benefit to holding master limited partnership (MLP) assets is the high income steam ...
The Case for MLPs
12/03/2014 12:00 am EST
Relatively high yields, strong recent growth, leverage to the domestic energy renaissance. There's a lot to like about master limited partnerships—or MLPs—suggests Mike Burnick in Money and Markets.
But investors were having none of it over the past few months. They started selling in late summer then dumped them like hotcakes since October.
Take the Alerian MLP ETF (AMLP), a benchmark sector ETF that rarely moves more than a couple nickels a day. It dropped 2.4% on October 9, then a hefty 4.5% on October 13.
Volatility exploded and the entire sector suffered its worst week since the debt-ceiling debacle in the summer of 2011. But has anything really changed when it comes to the long-term fundamentals?
I mean, we're still talking about yields that beat the pants off of Treasuries. AMLP sports an indicated yield of around 6.1%, for instance, versus 2.3% for a 10-year Treasury Note.
Oil prices have declined. But MLPs make money from transporting, storing, and processing oil, natural gas, natural gas liquids, and refined products, not from producing them.
So it really doesn't matter what a barrel of crude oil or million British Thermal Units (BTUs) of gas goes for. These companies still collect their ‘toll-road’ fees by helping get those energy products to market.
That said, frigid weather across much of the Continental US is making investors take a second look at energy stocks across the board.
Another positive for sector sentiment: The mega-deal in which Halliburton (HAL) will buy Baker Hughes (BHI) for $34.6 billion. That's igniting speculation about other potential energy company takeovers.
We've already seen some in the MLP sector and I bet more are coming down the pipeline.
So, if you're looking for income, and you're sick of getting paid Jack Squat in Treasuries, take another look at MLPs.
They're cheaper than they were a few months ago, they're less volatile than they were a few weeks ago, and they're among the most attractive yield plays I see in the marketplace.
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