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What do you think aout MLPs?
Old 08-03-2008, 02:18 PM   #1
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What do you think aout MLPs?

I'm considering allocating 10% of my equities to MLPs, as they have low correlation to stocks, yet equity like returns..I'm familiar with the tax implications, so not really looking for a discussion of that...Anyone invest in MLPs? Muchas gracias amigos/amigas.
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Old 08-03-2008, 02:26 PM   #2
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Welcome to the forum!

We previously discussed this topic at:

Limited liability partnerships

And no, I have not invested in MLPs.
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Old 08-03-2008, 02:57 PM   #3
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I don't own any MLPs right now, but they are on my shopping list to own eventually in my taxable portfolio (they are not appropriate for tax-advantaged accounts due to the tax reporting requirements).

More information about MLPs and PTPs, see: Welcome to the National Association of Publicly Traded Partnerships

As I understand it, when you invest in MLPs, you (or your tax preparer) get to become very familiar with Schedule E because MLPs are pass-through entities with special tax reporting requirements.

In terms of investments and asset allocation, MLPs do provide for portfolio diversification: Current PTPs by Industry
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Old 08-03-2008, 08:33 PM   #4
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Yes, You will become familiar with the advantages of using Turbo Tax to navigate those nasty tax forms, works pretty well (IMHO)
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Old 08-03-2008, 08:41 PM   #5
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Thanks guys..I'm already familiar with MLPs and the tax consequences. I'm really just asking if you think 10% of my equity allocation to MLPs is reasonable? They have low correlation and equity like returns. Thanks guys/gals.

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Old 08-03-2008, 09:10 PM   #6
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I have at 15% of my taxable account invested in MLPs and just under 9% of my total liquid assets. So clearly put me in the its fine category. I think the real issue is given that most MLP are associated with the energy business (primarily distribution of oil and gas) and are you comfortable with having 10% of assets in the energy? For me the answer is heck ya.
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Old 08-03-2008, 09:27 PM   #7
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Quote:
Originally Posted by JockStrap View Post
I'm considering allocating 10% of my equities to MLPs, as they have low correlation to stocks, yet equity like returns..I'm familiar with the tax implications, so not really looking for a discussion of that...Anyone invest in MLPs? Muchas gracias amigos/amigas.
I think it was Brewer who said that "In the beginning the general partner has all the experience and the limited partners have all the money. In the end..."
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Old 08-03-2008, 09:29 PM   #8
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But you can buy shares in the General partner for many MLPs and take advantage of the increasing distributions.
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Old 08-04-2008, 05:17 AM   #9
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Does anyone have any experience with or knowledge of MTP? I just came across a mention of it last week but have not had time to really explore it to see whether it is worthwhile. It is a fund of MLPs and thus should eliminate the tax reporting headaches.

Any other MTP-like investments that anyone knows of?
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Old 08-04-2008, 12:42 PM   #10
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Tax reporting is a PITA, but turbotax does it pretty well.

I think you should pay more attention to the underlying business than the MLP structure. Example: you can buy NMM, which is organized as an MLP, or DSX, which is a traditional C corp. Both pay out essentially all of the cash they generate and both are in the exact same business. Is NMM better than DSX? Maybe or maybe not, but the reasons would have nothing to do with tax/corporate structure.

I've owned a few of these things, mostly with successful results. The key things to watch are that the underlying business is sound, the partnership is not too heavily levered, and that the people running it (and the general partner) are on the level.
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Old 08-04-2008, 05:30 PM   #11
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Originally Posted by ladelfina View Post
Does anyone have any experience with or knowledge of MTP? I just came across a mention of it last week but have not had time to really explore it to see whether it is worthwhile. It is a fund of MLPs and thus should eliminate the tax reporting headaches.

Any other MTP-like investments that anyone knows of?
I saw a reference to MTP on a M* discussion forum a while ago.
Morningstar had no additional information on fund (very surprising) e.g. expense ratio or holdings, and Schwab had very little info. So I lost interest.
In the past when I've looked at closed end funds etc that invested in MLPs the 1.5% ER turned me off.

For companies like Kinder Morgan with ~6.5-7% growing distribution yield the extra income is worth the hassle of tax reporting, IMO.
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Old 08-04-2008, 06:27 PM   #12
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These energy and pipeline MLPs have been weak across the board lately, though some less so than others. The price weakness is in contrast to their generally good performance with DCF and distributions. My guess is that there is some anxiety about their need for continuing funding during a credit squeeze.

I bought some, hoping to get a reasonable and growing income while not paying a lot of current income tax.

One of my best all time purchases is an MLP. Bought in 1986 for a little less than $13, split *6, and closed today just under 30. Plus paying large and growing quarterly distributions for all these years.

All this while I was a little nervous about it, because it is an E&P MLP, and it often seemed to be running out of reserves. But new reserves just kept showing up so it all worked out.

Ha
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Old 08-04-2008, 07:44 PM   #13
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The folks at M* think part of the weakness with energy and pipelines MLPs is people are selling them off in sympathy to following oil prices. Which is sort of crazy cause pipeline revenues aren't particularly sensitive to the price of oil or gas going through them. I guess I can understand Exxon falling 10% since reporting record profits, cause we all know oil is going to go back to $50 barrel XOM profits will dip below $10 billion a quarter.. But pipelines?

One of the MLP (MGG) distributions have more than triple from .10/quarter to .34 in 2.5 years and the stock down 50% for the year just hit a 52 week low today, I guess over fears of tomorrows earnings reports.

What is the name of your MLP?
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Old 08-04-2008, 11:08 PM   #14
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In the early 80s there was a company named Dorchester Gas. It carved out long lived low flow rate gas reserves mostly in the Oklahoma and Kansa Hugoton fields. It had an mlp form and was called Dorchester Hugoton Trust. About 4 or 5 years ago this merged with some private collections of oil and gas royalty and working interests, the most prominent being Spinnaker Resources. This was done as a diversifying angle for a couple of major owners/founders. These people were very straight shooters, so I hung around. The new company was named Dorchester Minerals and so it is today. Now it turns out that they have considerable mineral rights in the Bakken, so over the last few months the price has incresed considerably. Not today though!

I am not making any sort of recommendation. I did buy some less than a year ago below $20, but it is hard for me to buy a strong security.

My other MLPs are mostly GPs of gas pipelines, also MGG as you mentioned, and some Nustar GP which has a chairman who left Valero to run Nustar, sold his Valero stock, and invested millions in Nustar. Bill Greehey is his name, and he is the guy who more or less created Valero. But I have a loss in this one right now.

This is the sort of thing that tries your soul- there is every reason that Nustar (and MGG) should be a big winners over time, but also some more or less credible threats. The biggest I guess is the fear that the USA will permanently and meaningfully reduce it's use of liquid transportation fuels.

Overall, I have been very good at finding promising O&G investments, but way too often I have been flushed out early.



Hey, but this is what makes this stuff interesting.

Ha
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Old 08-05-2008, 07:26 AM   #15
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There are other things besides O&G in the MLP world:

- FUN: amusement parks

- SPH: retail propane and heating oil distribution

- NUT: macadamia nut plantation

- STON: cemetary owner and operator

No doubt there are others...
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Old 08-07-2008, 06:04 AM   #16
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There are other things besides O&G in the MLP world:
- FUN: amusement parks

Great ticker symbol ok business I owned this one briefly a couple of years ago. But its having troubles consolidating its acquisition of Parmounts theme parks. Several people speculated that a recession oil price would cause people to vacation closer to home and would help attendance. However, Disney latest results seem to suggest that isn't really the case.

- SPH: retail propane and heating oil distribution.
I still consider part of the O&G business.One of my largest and favorite stocks, raised distributions 30% in a little over 2 years. Still yielding more than 8%. Its done a remarkable job cutting costs and making a more efficient business. It is bigger competitor APU is also worth looking at.

- NUT: macadamia nut plantation
A 2% yield with minimal growth, flat stock price over 5 years. Lousy business with much cheaper Mac nut production throughout Asia. You'd have to be crazy to own NUTs (groan).


- STON: cemetary owner and operator
Another good ticker symbol. I've looked at this one several times, ultimately I trusted M* analyst that said they are borrowing against future revenue to pay the high 9% distribution rate.
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Old 08-07-2008, 06:30 AM   #17
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None of those were recommendations, just examples.

FWIW, I think STON is badly misunderstood. The morningstar guy has no idea what he is talking about.
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Old 08-07-2008, 06:43 PM   #18
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STON: cemetary owner and operator
Another good ticker symbol. I've looked at this one several times, ultimately I trusted M* analyst that said they are borrowing against future revenue to pay the high 9% distribution rate.
Recession proof industry with few customer complaints!
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