You could be missing out on an opportunity to generate consistent 7-10% yields in the stock market.
Today I’m discussing Master Limited Partnerships (or MLPs) and 5 important points to consider if MLP’s should be part of your diversified portfolio.
I did an extensive webinar on dividend stocks, if you weren't able to attend live you should catch the replay. From how to pick stocks, where to buy and sell them, and how to increase your yields! I also discussed MLPs. Today lets break down Master Limited Partnership's just a little bit more.
1. What is an MLP, how does it differ from a normal stock?
MLP’s trade under a stock ticker but they are not structured like a typical company on the stock exchange. They often focus on energy infrastructure assets like pipelines oil, gas, coal, timber, and storage facilities. Their structure leads us into the next consideration, and that is taxes!
2. Tax Advantaged Investments.
MLP’s are considered a Pass-through entity, much like real estate syndications. There are General Partner’s and Limited Partners. The business is structured so that it is not subject to corporate taxation. However, the distributions to MLP shareholders are generally subject to income taxes. We are the limited partners. This is why you see L.P. on the charts. As a limited partner be aware of the tax implication for you.
3. K1-s take a while to arrive.
As a pass through entity, if you decide to trade these you should be aware that you will receive a K1 instead of a 1099-Div for your taxes. You likely will not receive your K1 until early April. I’m not exaggerating when I say I got a K1 on April 5th. I bring this up every time I look at EPD's chart, but I had already filed my taxes when the K1 arrived in the mail.
4. High yields mean steady income.
I have stressed why we should not chase high yielding dividend companies based solely on the dividend, did you watch the webinar? MLP's pay consistent dividends, and when you combine a buy low, sell high strategy by waiting to buy the shares at support, MLP's help make a diversified portfolio.
Everyone’s portfolio should have multiple companies in each category of stock. Adding some EPD to your PG, KO and ABBV seems like a nice combination! These are not specific stock suggestions, they are examples of stocks I happen to own.
5. Interest Rate Sensitivity.
Interest rate / Oil price risks- MLP’s are generally related to oil and gas pipelines. These companies are sensitive to changes in the interest rates, and the supply and demand can be impacted by the price of the underlying commodities. So if interest rates are already high and likely to go down perhaps these are more appealing. In low interest rate environments keep in mind this risk, although MLP's are generally still appealing because of the dividend yield the share price might offset some of your gains.
I think MLP’s have a place in portfolio’s where you are looking for a steady income through dividends, and when need some diversification outside of ‘boring’ dividend stocks.
I’ll see you next week here at the blog. I'll see you much sooner in our discord if you want to sign up!
Happy Trading Good Kids
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None of this is trading advice, it's for your education in hopes you can make money in the market as I have done. I’m basically just some dude on the internet who’s been trading 2 decades, and I use the stock market as my primary source of income. None of this is financial advice it’s purely educational!
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