In a Yield Starved Environment, Midstream MLPs are a UEI Pick

If you like the energy sector and want to make a recurring revenue play other than some boring utility, Master Limited Partnerships represent a high yielding opportunity. You’ve got to be careful how you enter the sector as the choice between a mid-stream pipeline provider and a vertical driller can have real implications for how the investment behaves but the volatility for the publicly traded stocks in the sector has been low relative to traditional equities and the consistency of the dividend distributions has been solid.

UEI favors the mid-stream pipeline and storage players as they tend to sign long term lease contracts with customers reserving capacity and the mid-stream is less susceptible to the ups and downs of commodity (liquid natural gas, oil, and other transportable chemicals) prices. Issue to diligence is the amount of leverage they’re using, number of shares traded per day (gotta be a liquid stock in case you need to get out) and how you and your accountant feel about getting K-1s each year instead of 1099s and other more traditional tax reporting paperwork. The easy monetary policy provided by the Fed over the last 48 months has certainly given some tailwind for MLPs but the risk reward trade-off given the current yields and US Energy fundamentals is terrific.

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