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InfraCap: A Hefty Yield from MLPs

07/08/2016 7:00 am EST


Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

In today’s interest rate world, income investors that have an appetite for big double-digit percentage yields have to go outside the conventional box, states Bryan Perry, editor of Cash Machine.

As to where the best values exist, -- assuming the world will maintain its slow growth recovery -- commodities and specifically energy are where we can continue to add exposure.

The oil and gas master limited partnership space, in my view, remains undervalued, with the largest MLPs paying out hefty distribution yields on an average of 8-10%.

So how about the notion of investing in ETF that includes market-leading midstream companies? Consider the InfraCap MLP ETF (AMZA).

The ETF uses historically low interest rates to leverage the basket of holdings by 20%-25% and incorporate an intensive covered call strategy that manufactures a current yield of 18.6%, which is not a typo.

The ETF invests in a portfolio of oil and gas MLPs with a solid history of earnings and dividend growth as well as investment-grade balance sheets

What separates AMZA apart from other energy infrastructure MLPs is that it is the only actively managed MLP strategy with a model that is built to track MLPs that are undervalued with the best upside potential.

The strategy also allows AMZA to add the General Partners’ stocks of these MLPs to the portfolio mix as many of them pay very high yields that add to potential robust yield and capital gains.

And finally, a proactive covered-call strategy not only adds income on a regular basis, it also reduces volatility.

Buying AMZA is suitable for only aggressive accounts and is to be added to the Aggressive High-Yield model portfolio. The current distribution depends on some element of capital gains to be maintained at its current payout level.

Let’s be crystal clear. This idea is not for “widows and orphans”. For those investors who are of the same view that the wind is now to the back of the energy infrastructure sector, AMZA makes for a compelling investment case.

AMZA is taxed as a C-Corporation. Therefore, investors get the Form 1099 and not K-1, making it a nice entry into the oil and gas space without tax complications.

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