MASTER LIMITED PARTNERSHIPS

Sunday, November 09, 2008

Many Many thanks to those of you buying Mystic Monk Coffee via the link on the side bar. Its great coffee and they make wonderful holiday gifts to bring to Thanksgiving Dinner or Christmas or Hannakah or to work off that hangover from New Years! And the commission helps to pay the rent here...so again MANY MANY THANKS!

S&P futures soaring tonight as the Chinese are stepping up to the plate with a large stimulus program. Should help materials and commodities based stocks in the morning. And maybe MLPS will go along for the ride! We can only hope and pray.

5 comments:

Anonymous said...: Good article about investing in MLPs on Marketwatch

http://www.marketwatch.com/news/story/Do-government-doesnt-find-safety/story.aspx?guid=%7B38836B36%2D792A%2D4B7E%2D969E%2D2E8C473A8F37%7D; 11/09/2008 8:27 PM
Anonymous said...: In case the link is no good:

THE GURU'S CORNER
'Go to ground'
Commentary: Do what the government doesn't... find safety

By Mathew Emmert, Dividend Gambit
Last update: 12:01 p.m. EDT Oct. 24, 2008Comments: 22
CHARLESTON, S.C. (DividendGambit) -- There's a major difference between what the government is doing with its new tax dollars to fix this market and what you should be doing to fix your portfolio.
Of course, that assumes the government actually knows what it's going to do with our $750 billion to fix this market, and from what we've heard, that might not be the case.
It's times like these that remind me of a phrase my father occasionally used. He was an Army man and when things got tough he used to say it was, "time to go to ground."
I imagine many have heard that term before, and I know it means different things to different people, but in a portfolio sense I believe it's a way of saying that this is the time to get small, play it conservative, let the storm blow over, and make as much money as you safely can while you wait for the trouble to pass.
For my newsletter subscribers, I've employed that strategy most recently by recommending shares of master limited partnerships, or MLPs. The stocks of these companies have been taking an absolute shellacking lately (even more than the overall market) for several reasons.
First, these companies have seen an immense amount of "forced selling" lately from troubled hedge funds that once considered these cash-generating beauties favorite investments, but now just see them as a source of much-needed cash.
Second, like real-estate investment trusts, or REITs, MLPs pay out most of their cashflow to shareholders, so while that's great for yield-hungry investors, it also means they tend to fund growth via debt issuance, and the frigid credit market has created fears that the lack of this source of funding will curb MLP expansion.
And third, as anyone who fills up their car is quite aware, commodity prices for things like oil and natural gas have been falling through the floor lately, and many investors don't know the important difference between which MLPs have exposure to commodity prices and which don't.

So, all of these things have combined to create a level of panic in the MLP space that can be exploited by those in the know. Two of the best firms I recently recommended to my Dividend Gambit subscribers during the brutal recent sell-off were Enterprise Products Partners (EPD:

and Teppco Partners (TPP:

Both of these firms own extensive, highly profitable oil and natural gas pipeline assets and storage facilities. They have little or no direct exposure to commodity prices. They have good access to capital and strong free cash flow, which should keep them growing both their businesses and their cash payouts for some time. They've also just completed large projects that have recently become accretive to their earnings.
And finally, both firms share the same managing general partner, which is effectively headed by Dan Duncan, who is a gentleman that I consider to be one of the best and brightest in the MLP space.

Because of the recent sell-off, our readers were able to add to Teppco at a price of around $20 per share and nab an annual dividend yield of nearly 14% (making these investments excellent choices for income-seeking investors). The stock has since recovered more than 20% to $25 and change, so the yield is slightly lower at about 11.4%. But in this market, I'd say that's still a clear buy for those who'd like a double-digit return from cash income alone.
Enterprise is a larger and more diverse company, which arguably adds some safety and reduces volatility, so it has a somewhat lower 9% yield at its current price (though it does have a higher rate of annual dividend growth). So, though Teppco would be my first choice among the two due to its slightly more attractive value, both firms make a great pair for any hunkered down portfolio looking for specific MLP exposure.

Mathew Emmert edits the independent real-time newsletter service Dividend Gambit and is the former editor of the Motley Fool Income Investor newsletter. Emmert owns shares of Enterprise and Teppco in his model portfolio.; 11/09/2008 8:29 PM
Anonymous said...: I don't see much of a connection between China's stimulas package and the price or volume of use of domestic nat. gas.

Can someone explain?

Bruce; 11/09/2008 9:53 PM
joewxman said...: no real connection. Just pointing out that the chinese action might drive commodities higher in the short term...and these days short term could mean between now and 9:30am!

Chinese and asia doing what ever it takes to stimulate growth might put a floor underneath. We'll see what tomorrow brings.; 11/09/2008 9:59 PM
Anonymous said...: Thank you for posting the "Go to Ground" article. Nice to start a Monday morning out on such a positive note...

Lee; 11/10/2008 8:16 AM