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Lunch » Tags » Books » Reviews » Master Limited Partnerships: High Yield, Ever Growing Oil "Stocks" Income Investing for a Secure, Worry Free and Comfortable Retirement

Master Limited Partnerships: High Yield, Ever Growing Oil "Stocks" Income Investing for a Secure, Worry Free and Comfortable Retirement

1 rating: 5.0

A book by Richard Stooker

In a low yield world where government bonds pay next to no interest, S&P 500 stocks pay little more than that in dividends, the Canadian government is on the threshold of taxing income trusts, and even real estate investment trusts are suffering cash … see full wiki

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Author: Richard Stooker

Publisher: CreateSpace

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May 13, 2010

by JSMaresca
posted in Cafe Libri: Reviewing Books & More

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Master Limited Partnerships by Rich Stooker
Gold Egg Investing

Reviewed by Dr. Joseph S. Maresca

Master Limited Partnerships are a good place to park an
investment according to the author. Yields are upwards
of 7%. There is a return of capital. Annualized
growth can be as high as 9% on average. The MLPs have
1/3 of the volatility of the S & P 500. The MLPs were down
but not catastrophically like the S & P in the market crash
of '08. The reason may be that energy has an inelastic
demand. Our energy needs are slated to grow by 1% per year
for the next several decades. MLPs like the pipeline business
are guaranteed profits. (virtually)
MLPs are also recession proof substantially. In addition,
the MLPs will be adaptive to the green power movement.
As limited partners, investors are responsible up to their
investment of capital only (UCC).

Examples of top oil shale investments are New Shale
NF Basins, Barnett Shale Tx.,Marcellus Shale Pa. and
Rockies CO. , Wy. and Utah. MLPs are 90 % owned by
individuals. In effect, the MLP refunds your investment
in 5 years or so and the remainder consists of dividends for life.

The MLP Index consists of Alerian MLP, Cushing 30,
Tortoise and others. The author explains the reporting requirements
for MLPs on the K-1 form and a small portion of Schedule E
( about 5% form utilization). Investors cannot net MLP profits
to losses in other MLP investments. Instead,
individual MLP losses may be carried forward. Form 4797 is
utilized for selling the units which would not be advised
if the objective is a life-long income.

The author advises us to record the MLP cost basis and
retain the worksheet. The best MLPs are Kinder Morgan (KMR)
and Elbridge Energy Partners (EEQ)according to the book.
Closed end MLPs utilize leverage to increase returns.
The book also recommends that investors receive and shelter
the cash flow from the MLP in a taxable account.

Examples of Tooth Booth MLPs are APL, BWP, BPL, ETP,
OKs (Natural Gas partners),WES, BGH, DPM, DEP, EROC and EEP.
If the purchase is made via the brokerage account, no K-1 form
filing may be required. Samples of exploration and
production MLPs are BBEP and DMLP (Bakken). POPE is a timber
MLP on the Nasdaq. I'm inclined toward investment in the timber
MLP coming out of a recession and into home building and buying.
Overall, the acquisition would be perfect for your personal
investment library.

Pipeline MLPs :
Here is a list of some major pipeline MLPs with stock ticker :

Amerigas APU
Atlas Pipeline Partners APL
Crosstex Energy XTEX
Dorchester Minerals DMLP
Enery Transfer Partners ETP
Enterprise Products Partners EPD
Ferrellgas Partners FGP
Genesis Energy GEL
Gulfterra Energy Partners GTM
Holly Energy Partners HEP
Inergy NRGY
K-Sea Transportation KSP
Kaneb Pipe Line KPP
Kinder Morgan Energy Part. KMP
Magellan Midstream MMP
MarkWest Energy MWE
Martin Midstream MMLP
Northern Borders NBP
Pacific Energy PPX
Plains All Pipeline PAA
Star Gas SGU
Suburban Propane SPH
Sunoco Logistics SXL
TC Pipelines TCLP
TEPPCO Partners TPP
Valero VLI

Natural Resource MLPs :

Alliance Resource Partners ARLP (coal)
Crown Pacific CRPP.OB (timber)
Natural Resource Partners NRP (coal)
Penn Virginia Resource Partnership PVR (coal, timber)
Pope Resources POPEZ (timber)
Terra Nitrogen TNH (fertilizer)

Real Estate MLPs :
America First RE Investments AFREZ
American Real Estate Partners ACP
Heartland Partners HTL
Interstate General IGC
New England Realty NEN

Most MLPs pay a hefty dividend of 4-8% (distribution).
These are good income stocks. The pipeline companies
have more stable businesses generally unaffected by
the underlying price of the gas or oil.

According to Master Limited Partnerships by Richard Stooker
(Gold Egg Investing),the best MLPs are Kinder Morgan (KMR)
and Elbridge Energy Partners (EEQ).

Kinder Morgan (KMP) has had a terrific run-up from its $8 or
so opening in 1997 to nearly $67 today. That's over 8 times
your original investment plus a mound of dividends.
Let's assume you bought KMP at the end of July 2005 for
$52.50. In the 5 or so years since, there was a payout of
over $18.40 per share of stock, averaging 92 cents per
quarter for the past 20 quarters. Roughly 35% of the cost
of KMP will have been returned in addition to a
$14. per share increase in price from $52.50 to the current
$67. over the past 5 years.

The computed returns are 6% in 2006, 6.4% in 2007 and over
7% thereafter. The pre-2008 crash dividend was 99 cents
per quarter and the post crash dividend actually increased
to $1.07 per quarter by April of this year. This MLP has
climbed steadily at about a 40 degree angle from $8 to the
current $67 per share. Draw a straight line through the peaks
and you will see that the trajectory is upward substantially
with the peak price getting higher and higher.
There are some intermittant valleys but the trend is
upward virtually throughout the past 13 years.

KMP transports refined petroleum products through more
than 37, 000 miles of pipelines. They transport CO 2 through
their top divisions. KMP owns 180 bulk terminals as well as
railroad transloading facilities. Approximately 90 million
tons of coal,petroleum, coke and bulk products are transported
each year. A key attraction is that KMP is an owner of important
factors of production in its ongoing operations.
In addition, the company offers quick and efficient solutions
to move Marcellus NGLs (natural gas) to market.

Despite this seemingly stellar performance, there is not
unanimity among analysts at this time advising to buy KMP.
The global economy must shake off doldrums in the Euro,
Greek debt, uneasiness over derivatives in some quarters and
a real estate market in varying stages of a recovery in the USA.
In addition, increments in the employment outlook would solidify
some of the recent traction in industrial gains.

On the positive side, KMP generated enough cash to pay
investors $4.20 per unit and have $14 million excess coverage.
According to the company website, the 2009 headwinds were
due to lower refined product transportation volumes,
less steel handling at bulk terminals,lower crude oil prices
and a difficult business environment for Texas Intrastate
Pipelines.

The company claims to have transcended these challenges
due to exceeding expectations on other assets, lower costs
internally, lower interest rates, a strong balance sheet ,
good cash flow and excellent access to capital markets.

The report of the 10K for the year 2009 was received on
2-23-2010 according to the Edgar records of the Securities
and Exchange Commission. The KMP management cited routine
constraining factors in doing business. Some of the major
constraints cited were:

o rulemaking, oversight and rate challenges in the industry
o cost overruns, delays in project completions and tightened
capital markets
o risks of energy commodity transportation, unexpected geological formations/pressures
o equipment failures, accidents, fires, shortages
o foreign supply and demand for oil and natural gas, OPEC
o market volatility and hedging arrangements
o downturns in credit markets can lead to increased
costs of borrowing
o pipelines in some areas may be subject to natural disasters
like hurricanes
o Federal Energy Regulatory Commission proceedings , carbon dioxide litigation and other litigation

I don't make investment recommendations. Nonetheless, KMP would
appear to be a better bargain in the mid to upper $50s/ share thereby increasing the yield to nearly 7.5%. At $67/share, the
acquisition could be pricey; however, I would keep KMP on
the investment radar screen and perform the due diligence
requisite to purchasing the stock at the appropriate time.

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