Income Is King Right Now — Check Out These MLPs

Written by Jason Simpkins
Posted August 26, 2022

Sometimes, when everything is down, the best thing you can do is start locking in income plays. 

This is because low share prices equal high yields that pay out regardless of what the market is doing. 

Then when things eventually come back up, you can cash in on the capital gains — or you can just keep collecting at the same high yield you bought in at. 

So right now, with the S&P 500 down 13% from where it started the year and the future uncertain, it’s a great time to go bargain shopping for some high-yield stocks.

And if it’s income you’re looking for, there are few investments better than master limited partnerships, or MLPs.

MLPs are great because they have a unique investing status that allows them to trade in units rather than shares.

This is because they were created by Congress in the 1980s to benefit companies that transport and store oil and gas — pipeline companies, essentially.

What’s great about these companies is that they get paid on volume, so it doesn’t matter whether oil and gas prices go up or down. All that matters is that the fuel flows.

The more fuel they move, the more money they make.

But here’s the thing: MLPs don’t pay taxes at the company level. Instead, they pass them directly to the unit holders, who are effectively partners in the business. 

That skirts the issue of double taxation that corporate dividends pay. That is, corporations pay taxes (theoretically, anyway) and then investors pay taxes on the dividends.

But with MLPs, you only end up paying income taxes on the money they yield. 

Better still, in many cases MLP distributions are tax-deferred, which means the taxes aren’t paid until the investor sells their position. And unless the unit holder owns a large position, their share of income is relatively small, so they may not even have to file in certain states due to minimum income limits.

So basically, MLPs combine the tax benefits of a private partnership with the liquidity of a publicly traded company. 

The income is juicy too as MLPs typically yield somewhere between 5%–10%.

A good example would be Plains All American Pipeline LP. 

The company delivered better-than-expected second-quarter results with net income of $203 million and net cash from operating activities of $792 million.

The company also raised its full-year 2022 adjusted EBITDA guidance to approximately $2.375 billion, which is $175 million higher than management’s initial February guidance.

That’s a great place to start, no doubt. 

But if you really want to nail down some high-yielding energy investments that are truly capable of overcoming a bear market, you should check out the latest report from my friend and colleague Keith Kohl.

Keith is a bona fide energy expert. I have been reading his Energy Investor newsletter for years, and I constantly go to him with questions about everything from oil to gas to nuclear to coal… Literally anything energy related, he’s got the answers.

Anyway, his latest report details FOUR energy income investments — two of which are MLPs. 

I’ve read it, and it’s outstanding. 

So again, check that out here if you want to make some real money.

Fight on,

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Jason Simpkins

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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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