Published:
March 3, 2009
The
correct answer is
(D.) Kayne Anderson Energy TR (KYE)
Kayne Anderson is the nation's
top institutional investor in the
MLP space -- and this is the firm's
flagship fund. This past July,
dividends were bumped up to $0.50
per share, which at the time
provided a nice yield of 7.3%.
Today, those quarterly checks are
still at $0.50, but the shares have
sunk some -60% to about $12. So
thanks to this downturn, the yield
has suddenly ballooned above 17%. In
other words, not only will a $10,000
investment net you 833 shares
instead of 365, but it will also
throw off about $1,700 in annual
income -- more than +100% more than the
$730 you would have been getting on
an annualized basis last summer.
MLP stands for master limited
partnership, and the vast majority
of MLPs are in the energy business.
Specifically, they own and operate
assets that transport, process, and
store crude oil, natural gas, and
petrochemicals. These critical
"midstream" functions are vital to
enabling oil/gas producers to get
their products from the ground to
the market. The assets don't require
much ongoing capital expenditures,
and competition tends to be minimal
in many regions.
Because MLPs aren't involved in the
actual production and sale of
commodities, many pipeline owners
care little whether crude slides to
$25 or springs back to $100. As long
as oil and gas are flowing through
the system, the company responsible
for moving it is well-compensated
for its services.
Not too many industries --and ETFs
-- can count on inelastic demand,
natural barriers to entry, strong
operating leverage, and (to one
degree or another) insulation
against fluctuating prices. So it's
not surprising that MLPs are famous
for generating highly stable and
predictable cash flows in both good
times and bad. And like utilities,
they have little need to retain
profits and usually return them to
shareholders (technically known as "unitholders")
as fast as they take them in. In
fact, MLPs typically distribute
about 90% of their cash flows each
quarter -- and in this case, Uncle
Sam doesn't take a cut of the
proceeds.
In any case, it's easy to see why
MLPs and MLP-based ETFs are prized
for their unique mix of stability,
income and growth. And after this
historic selloff, there has arguably
never been a better time to invest
in this attractive sector. That's
why in his latest issue of the ETF
Authority newsletter,
StreetAuthority editor Nathan
Slaughter has compiled a list of six
MLP-based ETFs that are thriving —
and supplying their shareholders
with fat checks. To learn the names
of these ETFs, and to learn more
about the ETF Authority newsletter,
please visit this link.
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