Energy Income Partners (energymlp.com), which manages two closed end funds for First Trust (www.ftportfolios.com) -- FEN (Energy Income and Growth) and FIF (First Trust Energy Infrastructure Fund)has prepared a chart that nicely illustrates this point.
A common way to invest in MLPs are through funds that track the Alerian MLP ETF index such as the JP Morgan Alerian MLP Index ETN (AMJ). There are two objections to this fund: 1) the high expense ratio for an ETF of .85%, and 2) the ETN structure exposes investors to the credit worthiness of JP Morgan with just took a headline catching $2 billion dollar loss on some foolish investments.
Given these objections and the limited universe of MLPs, individual investors may be better off buying these securities directly. The index is made up of companies like the ones below (a full list can be found at the Alerian site):
| Security | Symbol |
|---|---|
| ENTERPRISE PRODUCTS PARTNERS L | EPD |
| KINDER MORGAN ENERGY PARTNERS L.P. | KMP |
| LINN ENERGY, LLC. | LINE |
| PLAINS ALL AMERICAN PIPELINE L | PAA |
| ENERGY TRANSFER PARTNERS LP | ETP |
| ONEOK PARTNERS LP | OKS |
| MAGELLAN MIDSTREAM PARTNERS LP | MMP |
| ENBRIDGE ENERGY PARTNERS LP | EEP |
| WILLIAMS PARTNERS LP | WPZ |
| MARKWEST ENERGY PARTNERS LP | MWE |
| EL PASO PIPELINE PARTNERS | EPB |
| BUCKEYE PARTNERS LP | BPL |
| TARGA RESOURCES PARTNERS LP | NGLS |
| NUSTAR ENERGY LP | NS |
| REGENCY ENERGY PARTNERS LP | RGP |
| SUNOCO LOGISTICS PARTNERS LP | SXL |
| WESTERN GAS PARTNERS LP | WES |
| BOARDWALK PIPELINE PARTNERS LP | BWP |
| COPANO ENERGY LLC | CPNO |
| GENESIS ENERGY LP | GEL |
| DCP MIDSTREAM PARTNERS LP | DPM |
| TC PIPELINES LP | TCP |
| SPECTRAENERGY PARTNERS LP | SEP |
| CHESAPEAKE MIDSTREAM PART | CHKM |
| EXTERRAN PARTNERS LP | EXLP |
| CROSSTEX ENERGY LP | XTEX |
Most companies in the index deal with energy in some manner, such as exploration and production, or transport, and have a history of steady dividend increases. Merger activity has also picked up in this sector with Kinder Morgan's planned merger with El Paso, and Energy Transfer Partners planned merger with Sunoco.
The largest MLP at the moment is Energy Products Partners (EPD), and their dividend history is impressive, especially with reinvestments:
| Year | Dividend |
|---|---|
| 1999........ | $0.92 |
| 2000........ | $1.02 |
| 2001........ | $1.14 |
| 2002........ | $1.34 |
| 2003........ | $1.44 |
| 2004........ | $1.51 |
| 2005........ | $1.66 |
| 2006........ | $1.80 |
| 2007........ | $1.92 |
| 2008........ | $2.05 |
| 2009........ | $2.17 |
| 2010........ | $2.29 |
| 2011........ | $2.41 |
Income investors should take a hard look at MLPs for their portfolios to supplement their traditional stock and bond allocations. The last decade was spectacular for MLPs as compared to stocks, and while that is not a predictor of the future the oil and gas boom on private lands is continuing to fuel the growth of these companies.
Disclosure: Long EPD, LINE, BIP.
A word of caution concerning master limted parternerships. Sometimes these things are high risk. If you are not dealing with someone thats a real expert when it comes to this sort of investment that could be a big mistake. Some of these trusts do not even trade on a regular exchange.
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