MLPs for my circumstances?

[stephenson]

I'm in the OMY mode right now with megacorp - have great job with great boss so no particular hurry.

Retired military, second house, couple of rental properties, 401K from megacorp, IRA from previous investments, kids gone, home mortgage but no real factor in finances ...

I have done some reading, have a couple of friends who have MLP holdings, including a good friend who is an FA (but, has never made a run at me for business).

I understand tax comps are more complex (I do my own, still) ...what are some considerations as I review getting involved in MLPs?

Anyone with same general circumstances considering or already in MLPs?

Thanks!!

 

[ESRwannabe]

I just recently made a very big bet on MLPs using the Alerian MLP ETF (AMLP). The ETF has high fees but most of them are used for paying taxes. The non-tax related ER is .85, which is high but average for other MLP manegement like closed end funds and such.

The fund is a C-corp and they take care of the taxes and distribute qualified dividends to the ETF shareholders. So I don't have to bother with K-1s going this route.

My main motivation for using the ETF though was that I wanted to make a large long term bet on this and using an index makes me more comfortable as I'm only making a sector bet.

My plan is to buy and hold this ETF from here on out. I'm 39, so I'll be holding onto it for a long time.

Anyway, I think the MLP sector has been wrongly crushed along with everyone in oil. I think there may be some short term dividend suspensions or cuts in the short term and I'm prepared for that. Long term I think the MLP sector is valuable and needed, and I expect distributions will be similar to the past.

Making this bet... if it pays off... will put in a position of being able to fully retire at 45 instead of early semi-retire (work part-time) as I was planing.

 

[hesperus]

Here's a recent thread:
http://www.early-retirement.org/forums/f44/what-about-mlps-78105.html

 

[stephenson]

Did some more reading ...here is one of the better articles ...https://personal.vanguard.com/pdf/ISGPMLP.pdf.

I don't want the pain of K-1s for filing ...I do think now is a pretty good time, but have to do some more research ...the ETF route is interesting, but seems like it isn't as clearly advantageous re the strong points of taxes and amortization and depreciation pass through.


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[hesperus]

Did some more reading ...here is one of the better articles ...https://personal.vanguard.com/pdf/ISGPMLP.pdf.

I don't want the pain of K-1s for filing ...I do think now is a pretty good time, but have to do some more research ...the ETF route is interesting, but seems like it isn't as clearly advantageous re the strong points of taxes and amortization and depreciation pass through.


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Personally speaking, if you do decide to invest in MLP's, I would stay in midstream MLP's, because they are fee and volume partnerships, not quite as intimately connected to commodity pricing as upstream companies. They basically function as a toll booth for oil/gas flows, and can benefit even in an oversupply situation. The K1's can sometimes be a pain to manage, especially if you have multiple holdings (I have six), as some K1's occasionally come in late, triggering an extension. Because most of the taxes in MLP's are deferred until units are sold, they can work very well in vehicles like trusts that offer a stepped up basis to a spouse or children when passed on.

 

[stephenson]

Esr and Hesperus ...good stuff ...thanks ...I couldn't find much re absolute risk rating ....is there somewhere this might have been developed and analyzed with metrics?

MLPs would seem to be about the same as pretty solid equities ...with a bit less volatility generally, but subject to more volatility as the energy sector is affected ...


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[ESRwannabe]

Esr and Hesperus ...good stuff ...thanks ...I couldn't find much re absolute risk rating ....is there somewhere this might have been developed and analyzed with metrics?

MLPs would seem to be about the same as pretty solid equities ...with a bit less volatility generally, but subject to more volatility as the energy sector is affected ...


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You can read some really good info on MLPs here:

https://www.alerian.com/

Also here is the ETF that I use:

Alerian MLP ETF (AMLP)


There are other options as well like ETN and closed end funds if you want someone else to manage it for you and take care of taxes. My preference is the ETF.

If you want the most bang for your buck then you would want to buy individual MLPs. I'm not doing that primarily because I want to make a sector bet only and not have to worry about individual companies. Giving the added tax work it would be really hard to buy 20+ MLPs on my own to spread out company risk on my own.

 

[stephenson]

Talking about stuff like this today with friends ...one particularly likes KYN because it is so predictable as a Closed End Fund (CEF) and is not an "index MLP" ...

Thoughts?


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[ESRwannabe]

Talking about stuff like this today with friends ...one particularly likes KYN because it is so predictable as a Closed End Fund (CEF) and is not an "index MLP" ...

Thoughts?


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I've never heard of them before but holding breakdown looks fine to me.

http://www.kaynefunds.com/uploads/documents/fund_comparison.pdf

Looks like they use a lot of leverage. The ETF which I own doesn't use leverage.

KYN Kayne Anderson MLP CEF KYN Quote Price News

Looks like you will pay a premium to buy in. Volume looks to be about half of the ETF I use, which is probably ok.

https://www.google.com/finance?cid=696684

 

[ESRwannabe]

FYI. Here is a useful conference call from a company that sells MLP funds. Its from August 3rd. So pretty recent.

Gives good info on the current oil issues and MLPs.

K-A webcast on the state of the MLP market -- August 3 at 1:00 p.m.

KA Fund Advisors, LLC | Webcasts and Presentations | Webcasts and Presentations

 

[stephenson]

So, it was such a crazy day ...spent an hour getting smarter with my FA FRIEND (no money with him) on MLPs ...ended up buying 100 shares of KYN, a CEF ... kinda on a lark ...not much money (some up attached I had with ameritrade) but allowed me to do a full turn on the idea. I'll learn as I go ...

He recommended www.cefconnect.com as a research site ....lots of data.


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[ESRwannabe]

Stephenson here is an article from yesterday (Aug 21) you might like:

Dividends & Income Digest: MLPs Still Offer Appealing Opportunities, But They're Not For The Faint-Hearted | Seeking Alpha

"The MLP sector is in a full blown bear market. The Alerian MLP index is down 30.5% compared to a year ago."

"Fundamental and historical factors point more towards an MLP recovery. For the second quarter, 86% of MLPs maintained or increased their distributions, with median year over year increases of 5.5%. The MLP distribution growth model is still functioning. The average MLP yield is now 5% or 500 basis points greater the 10-year Treasury yield. Over the last 20 years, when the MLP yield was more than 5% above than the Treasury yield, the MLP sector has averaged greater than 30% total returns for the next 12 months."

 

[clifp]

I'd suggest signing up for a least a free trial subscription to the Morningstar Dividend Investor news letter. You can cancel after 30 days. One of the free reports they provide is a guide to MLP which is the best source I've seen on describing how MLP work and the tax implication.

The portfolio generally contains 5 or 6 MLPs out of roughly 30 stocks and he discusses pretty much all of the major players.

I think it is really a good opportunity to buy MLP, but there is a significant risk that both oil prices and oil volumes will remain low for an extended period of time in the US.