These Large-Cap MLPs Offer High Yields And Low Risk

Andrew Gordon — Tue, 30 Dec 2008 16:01:14 +0000

The mad rush to US Treasuries has driven yields down to measly levels. But Andrew Gordon says investors can find much better returns with Master Limited Partnerships (MLPs). Better still, large-cap pipeline MLPs get their revenues from fees, and so are less exposed to wild swings in oil and gas prices.

This from Investor’s Daily Edge:

The chart below is only one month old. But in their recent flight toward safety, investors have driven the yield of the 10-year Treasuries down to 2.13 percent – below the three percent shown in the chart.

That rate doesn’t even keep up with the rate of inflation.

On the other hand, parts of the stock market are throwing up some hefty yields. Take a look at these…

Source: Wachovia/Bloomberg/FactSheet market data as of November 28, 2008.

Most of these companies are master limited partnerships (MLPs). They have to give shareholders 90 percent of their cash earnings every quarter. So the better they do, the better you do.

They’re offering anywhere from 10 percent to over 26 percent yields (coming from some of the exploration and production MLPs). Of the categories above, I really like the large-cap pipeline MLPs. Their revenues come from fees. They don’t go up and down with the huge swings in the price of oil and gas.

That makes a big difference. Though we’re using 4-6 percent less fuel now than at this time last year, the price of oil has dropped 74 percent and the price of natural gas 26 percent. The revenues of these big and well-established companies are very stable. And so are the dividend checks they give out.

It’s a great alternative to the measly returns of government bonds.

Source: Outlandish Yields from Solid Companies

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These Large-Cap MLPs Offer High Yields And Low Risk