Pipeline MLPs

[rwwoods]

In the search for high yield investments, I discovered pipeline Master Limited Partnerships (MPLs). SmartMoney has an article on them.

http://www.smartmoney.com/sturmscreen/index.cfm?story=june03

Is anyone using pipeline MLPs to diversify their portfolio? If so, how is it working out?

 

[JG]

I have a few and they've worked out great. Steady income and nice appreciation. There are a lot of caveats though.

1) Taxes can be messy. Unless you buy a PIK issue ("pay in kind," which issues stock instead of cash), seriously minimize them in your IRA.
2) If you heard about the high gas prices in Phoenix, that was because of an MLP pipeline getting clobbered. Pipelines are also vulnerable to terrorist and criminal attacks and large lawsuits. They have insurance but the unit price will probably fall and the distribution might also until the pipeline is fixed.

There are some good things about them too. Since they're in the delivery business, oil and gas prices largely don't affect them. The distributions are generally tax deferred ("return of capital) until you sell the units or depreciate to zero. Turbo Tax can handle them.

Do your DD and especially note the debt ratio.