Get Ready for a Slew of New MLPs

Focus: INCOME

Peter Staas Image Peter Staas Managing Editor, Capitalist Times and Energy & Income Advisor

Maybe it's the popularity with income investors, maybe it's all the new activity in the shales across the nation, but whatever the reason, Master Limited Partnerships are going to explode in coming months, writes Peter Staas of Investing Daily.

Although Facebook’s (FB) recent initial public offering (IPO) and the stock’s subsequent performance have soured many investors’ appetites for new listings, those who favor dividend-paying stocks shouldn’t foreswear the IPO market completely.

Many brokerage and financial Web sites incorrectly report recently listed stocks’ yields until these companies have paid a full year’s worth of dividends, a quirk that provide savvy investors with an opportunity to purchase the most promising dividend payers before the herd catches on.

Investors mulling a position in a recently listed stock should pay close attention to two key dates: the quiet period, when investment banks underwriting the IPO are barred from issuing research reports or earnings estimates on the firm; and the lock-up date, when company insiders are prohibited from selling their shares.

At the expiration of the quiet period, brokerage houses involved in the IPO often issue lengthy research reports trumpeting the fledgling stock’s growth prospects. Nothing drives trading volume and price appreciation like a slew of positive initiations from analysts at the big investment banks.

Recent IPOs sometimes come under near-term selling pressure when the lock-up date passes, as company insiders seek to monetize some of their stakes. Investors shouldn’t necessarily regard these sales as a portent of future disappointment; insiders with an outsized proportion of their wealth tied up in the company’s stock may look to raise cash and use the proceeds for other purposes.

For income-seeking investors, IPOs of master limited partnerships (MLP) can be a lucrative opportunity to buy into long-term growth stories at favorable valuations.

 
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