MWE unit price keeps chugging northward. The compelling future growth prospects and increasing DCF are creating many problems for prudent investors that are considering diverstification but like the money and hate to pay the taxes for trimming their positions and losing the future growth..
In 2012 I rebalanced my portfolio by selling half my holding in MMP which I bought in 2004. My purchase price was $16.68 and the sale price was $49.86. What I thought was a $33 profit turned out to be a $43 profit. Due to recapture/return of capital, etc the cost basis was reduced to about $7. Be carefull when selling long held MLP's. Your profit may be much more than you expect or a perceived loss could actually become a taxible gain.
You understand what I'm talking about. For those that pay attention MWE has been an ever increasing goldmine that continues to pay increasing amounts or mostly tax deferred cash distributions. And as you say the tax deferrel lowers the cost basis of the units and makes it virtually impossible to sell-rebalance or whatever other thought you might have. I started buying MWE's General partner (MWP) in 2004 and kept on buying until MWE merged with them and I continued buying MWE and with all of the buying at ever increasing unit prices my average cost basis has dropped to $7.18 as of Dec 31, 2012 and it is probably even lower due to the Feb distribution I received and the May distribution coming next week.
So, it is very difficult to even think of selling.
In the original post on this thread I tried to explain the problems with a successful position in a MLP that keeps growing in value and at the same time throwing off ever increasing quarterly distributions that are mostly tax deferred( Good because the bulk of the distribution that you receive is received with a small portion being taxable and Bad because the balance reduces your cost basis per unit) Not good from the standpoint of approaching a "Zero Cost Basis" or even reaching that status which would trigger all distributions as taxable.
So that begs the question --What to do? Buying more units will increase your "Cost Basis" The more units you buy the larger your position becomes and the more continuously growing distributions you will receive that will increase the reduction of the higher costbasis of the larger number of units that you will have. The ideal situation is to have other stocks in other industries that grow as fast or faster than MWE and/or other MLP's. Not an easy situation.
It is virtually impossible to "take some money off the table" because the cost basis is very close to "Zero" Buying on dips actually compound the problem. More units and more distributions per invested dollar than if you buy on upward spikes and sell on dips as long as you specify to sell the higher cost units.. I know it probably sounds crazy but so is the tax code and they are the 800 lb gorilla in the equation
I am out in Ca Az Nm presently. Let me give me give you my 2 cents. The entire mlp group has been ahead of itself from Feb to Apr. The sell in May and go away appears to be the immediate future. My suggestion is to stay with a 10-20% MWE position but when SXL ACMP WES PAA GEL TRGP NGLS WPZ WMB come to realistic prices in May and June buy in slowly and dollar cost average of the 8-10% and 10-20% growers. The golden years have just begun. Oil prices may retreate and NG prices slowly will rise NGL prices are not going to be good this year. The keystone in 2-3 years away and will not change things. Propane is being exported gangbusters with butane. It requies some smarts going forward these 6 mos. LISTEN TO the 1/4 conference calls to see who has the coverage and plan forward this year MArv
I agree that MWE has good prospects, but note that the AMZ is within about 1% of its all time high. Other MLPs I own were up over 2% including DPM, GMLP and RNO. I would guess that there are lots of other places to place money. With basic materials stocks at all time adjusted lows and paying 4% or more in dividends - lots of good places to invest in the economy in both mining and oils like RDS.
Trimming a position in a long help MLP is just plain stupid. But allocating more new $$ to MWE if overweighted is not a good idea. The reason is simple - the almost 60% institutional ownership. Remember 2008/09? Those guys were forced to dump. That today is the biggest issue I see with MWE for the next year. Any significant movement upward in interest rates is going to create a massive movement of $$. No idea where that money will go but know it will NOT be into MWE or other MLPs.
The best scenario is that improving takeaway will improve NGL prices - this will happen later this year in Western OK and part of TX and help MWE - along with an economy (worldwide) that increases demand for plastics and all that stuff you make with NGLs, and MWE can get investment grade and be able to lock in interest rates on debt for 30 years. That needs to happen BEFORE the FED gets around to ending its "free money" program. If interest rates rise before MWE is ready then those MLPs that are investment grade will have a big advantage of maybe 2-3% in financing costs. No predictions from me as I thought we would already be tightening.
Still in AZ. I don't agree and have said many times it is not presently mlp's in NG or NGL's but oil and refiners who are raising distributions. Even WMB guidance is 20% distribution increase. SXL signing on Shell for propane and Mariner south shows those in propane DPM (not that great) NGLS and EPD ( won't matter) will weather the storm this year. The May scenerio tell all to be cautious in buying mlp's at high prices. Please alot of my discussion is in an IRA where trading is easier The EOG CEO is talking about Eagleford and now Deleware (Wolfcamp) as the oil money tree. For immediate duration it still remains movement of oil storage of oil and oil products
B&W/Arbtrdr..with thanks to B&W .as my MWE stake has grown to 20+% of my holdings have cut back on new additions to MWE..now have GEL,APL,DPM etc bounding along,too. To Arbtrdr's point am watching FED's money printing closely...when I realized what the MLPs were doing in lowering my overall tax rate took on a few MREITs like AGNC and IVR,too..Bernanke will affect them. But in the meantime to have high yielders at a low effective tax rate is kind of neat. Re NGL pricing let me refer you to EPD's Analyst Day Presentation and Q1 CC transcript. Excellent discussions of NGL pricing/volumes/marketing. Noted that EPD's recent propane export expansion reaches full,14,000 barrel/HOUR capacity this week. With Targa's 5,000 barrel/HOUR propane export terminal going on line in Q3 expect firm propane pricing from now on. EPD talking about beefing up butane exports as well. APL's Q1 CC noted that DPM's new NGL pipelines in TX,OK are opening up more NGL capacity for its' rapidly expanding production. APL has signed a 15 year mktg agreement with DPM to get Mt Belvieu NGL pricing instead of Conway. My sense is that MWE's Marcellus/Utica action is coming online at the right time. Had MWE grown more slowly it IMO would have been submerged by the EPD,Williams, and DCP Enterprise action ramping up. One more double makes MWE a $20Billion market cap, well able to withstand anybody's bid other than an EXXON,Statol, or perhaps GAZPROM, or Sinopec.