4 favorites among energy MLPs

Investors seeking high yields should look to these partnerships.

By TheStockAdvisors Jan 22, 2013 10:03AM
Oil drums Kevin Phillips Digital Vision age fotostockBy Elliott Gue, Energy & Income Adviser

Investors breathed a collective sigh of relief after the compromise between the president and Congress ended months of fear-mongering headlines about the impending fiscal cliff.

With taxes on dividend income topping out at 23.8%, stocks that return cash to shareholders via regular disbursements will retain much of their appeal. (Absent a compromise, the highest tax rate on these payouts would have jumped to 43.4%.)

Meanwhile, we expect the Federal Reserve to keep interest rates near zero for the foreseeable future, especially with economic growth likely to weaken in the first half of the year. In this environment, investors will continue to flock to higher-yielding equities.

As expected, the compromise didn't affect the tax-deferral advantages associated with master limited partnerships (MLP).

Investors looking to build positions in lower-risk MLPs should consider Energy Transfer Partners LP (ETP) and Western Gas Partners LP (WES).

Meanwhile, Linn Energy LLC (LINE) and Vanguard Natural Resources LLC (VNR) have pulled back in recent weeks, reflecting concerns that the decline in the price of natural gas liquids (NGL) will weigh on distributable cash flow. (Hedging NGL production is a challenge.)

Nevertheless, both names trade at attractive valuations and stand to benefit from the recent improvement in the price of natural gas and a steady pipeline of low-risk resource acquisitions.

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1Comment
Jan 22, 2013 10:53AM
avatar

I love my MLP`s, but the best way is thru a mutual fund rather that chasing down the

K1 forms.

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