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They say a picture is worth a
thousand words. Let's see if they're right:
The top line on our chart shows the performance of an oil and
gas master limited partnership (MLP) that owns a network of
pipelines and other hardware necessary to move petroleum
products throughout the United States. The bottom line shows the
S&P 500, basically flatlining.
As you can see, the MLPS have done
extremely well this year, about 44 percentage points ahead of
the anemic S&P 500 Index. The picture tells the MLP story, which
can be summed up in one word: Safety. MLPs have delivered strong
gains as the rest of the market struggled because almost nothing
can interrupt their business.
That's why MLPs have been able to not only deliver these
astounding returns, but also to accomplish another amazing feat:
They've kept paying their dividends. In fact, the company in the
chart, like most MLPs, has a strong double-digit payout, one
that's roughly three times the market average. Other MLPs that
my colleague Carla Pasternak holds in her
High-Yield
Investing portfolio have done even better.
So what is an MLP, besides
being yet another acronym in the alphabet soup that is Wall
Street? These are special entities set up to finance and own
an asset and earn revenue from its business. And though that
business -- oil -- is one of the most volatile on the plant,
MLPs are among the most stable investments you can buy. In
fact, as you can see, they're something investors run to
when the rest of the market looks too risky.
The reason for this is the MLP business model, which looks a
lot more like a toll bridge than an oil derrick. Oil, as you
know, fell from a high of $147 a barrel down to the low $30
range. Great news for drivers but an apocalypse for some
investors.
But even that dramatic drop didn't change how much it costs
to pump a barrel of oil from Point A to Point B. That rate
stays pretty steady, regardless of the value of what's being
pushed through the pipeline. Or, to use our other analogy,
the bridge toll for a $375,000 Rolls-Royce Phantom is the
same two dollars it is for a $2,750 Kia Spectra. A car is a
car, just like a barrel of crude is a barrel of crude,
whether it costs $150 or $50.
Now, while it's true that recession reduces crude use in
emerging markets, where driving is a luxury, it's not as
pronounced in developed countries where driving is
essential.
As you can see from the chart, there hasn't been a
precipitous falloff in crude shipments. A slight reduction
some months, yes, but no crash.
What this means practically is simply this: The nation uses
a lot of oil in good times and bad, and the MLPs that own
the pipelines that move oil do well throughout the upswings
and downturns of the economic cycle. Your dividend checks
are backed up by the nation's insatiable thirst for oil for
our cars and natural gas to heat our homes. That's one of
the reasons that the MLP shown in the top chart has
increased its revenues +58.5% since 2005.
What does it mean to have a strong dividend payer in your
portfolio? It means one thing: Safety. You don't have to
worry about what's going on in the market when you've got
tangible results. For conservative investors, there's simply
nothing safer than a cash return. And MLPs throw off cash
like no other asset -- that's their entire reason for
existence!
If that sounds like it's right up your alley, then there's
another group of securities that you should be aware of.
They pay yields of 9.5%, 18.5%, and even 19.4%. Thanks to
this group of securities we're locking in annual paychecks
of $16,300, $19,900, and even $28,900 for every $100,000 we
invest.
Go here to read all about them.
Many Happy Returns
--Andy Obermueller
StreetAuthority Investment Analyst
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Green Shoots
Investors are looking for some "green shoots" after a
long winter of discontent. So which of these instruments
are up a remarkable +46% for the year through mid-April?
A.)
Convertible bonds
B.)
Treasurys
C.)
Preferred stock
D.)
Blue chip stocks
E.)
TIPs
(Please click on one the
links above. After you make your choice, we'll show you
the correct answer on our web site.)
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Visit this link to read additional articles from today's
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 Paul Tracy
Co-Editor
TopStockAnalysts Digest
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