Upside Growth and a Bunch of Income

07/11/2014 7:00 am EST

Focus: MLPS

Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Capitalist Times' Roger Conrad illustrates how you can find value by delving deeper when it comes to investing in MLPs.

SPEAKER 1: Hi, I’m here today with Roger Conrad, editor of the Capitalist Times, and we’re going to talk a little bit about master limited partnerships, MLPs. Why should people consider MLPs? How do you find ones that work better than others?

ROGER: Well, I think the biggest reason to consider MLPs is the great American energy boom, and what we’re seeing, unprecedented production of oil, natural gas, natural gas liquids, I think that’s going to accelerate. We’re actually becoming energy independent in this country and I think we’re going to see energy exports, so MLPs are intimately connected with this trend. There’s a lot of growth there and because of a tax law, they’re able to push a lot of income towards investors, so the yields are higher, and you’ve got great growth.

SPEAKER 1: Just quickly, how does an MLP work, how does an investor get into it?

ROGER: Well, MLPs are basically like stocks, so you trade them on a – or you buy and sell them on exchange, New York Exchange, NASDAQ Exchange, very liquid entities. There’s about 82, I think, involved in the energy business, so you just buy and sell them like you would a stock. Now, tax time, there are a few complications. You file a K1 instead of a 1099, but with TurboTax and, particularly, if you use an accountant, the big problems that used to be faced by investors in the sector really don’t exist anymore.

SPEAKER 1: You’re getting some upside growth and a lot of income?

ROGER: I like that. It’s a really nice combination and I think you don’t have income without growth for very long. MLPs are a great way, because they’re tapped into energy also, beating potential inflation down the road, beating potential erosion of the dollar down the road, or if none of that happens, they’re still growing, as they build their business.

SPEAKER 1: And you should look for ones that are a little bit off the radar?

ROGER: Well, the one problem, I think, with MLPs now is we’re five years plus into a bull market, and MLPs have really participated. They’ve vastly outperformed ordinary indexes, but you can find a lot of value, if you delve a little bit deeper, and that’s what we do at Capitalist Times, and one of the areas that I think is really interesting now are companies that haven’t been raising distributions for a while. A lot of companies, a lot of investment companies, funds, they have a metric where they don’t buy anything if it’s not raising its dividend on a regular basis, so you can see if those guys aren’t buying, the stocks are much cheaper.

SPEAKER 1: Are there one or two that you like especially right now?

ROGER: I think Enbridge Energy Partners is very interesting right now, and the main reason is because I think they’re going to resume distribution growth, and as we saw last year with a company called Buckeye Partners, once they do that, you get a really nice capital gain coming out of it. Buckeye outperformed the Alerian Index by three-to-one margin last year.

SPEAKER 1: Thank you Roger.

ROGER: Hey, thank you.

SPEAKER 1: Thanks for joining us at

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