I currently have a small position in EPD as my first MLP that I bought in the low 20s. I have some extra money I'd like to invest and was wondering if the consensus is to stick with EPD as the big fish or to diversify for slightly higher yields? I'm in my early 30s so this will be a very long term holding. Also, besides the extra time required, are there any drawbacks to having multiple K-1s?
Thanks for any replies. This board is consistently the only one I find valuable.
If you are only going to have a small position in MLP's, I think EPD gives you exposure to a diversified portion of the MLP space in a single entity. EPD is a well run company with a low cost of capital, a lot of internal growth opportunities and a great track record of distribution increases. It is also the only one of the big, diversified MLP's that has its IDR's capped at 25%, so as distributed cash flow increases, the limited partners share 75% of the increase and the GP gets 25%.
If your interest is not really diversification but exposure to slightly higher yields, there are some excellent choices out there, such as MWE, NGLS and RGNC. But, as ARB mentioned above, the reason that these partnerships have higher yields is because the market views them as having some combination of higher risk and lower distribution growth prospects than EPD.
Stick to the big fish!
Most able to continue to increase distributions
KMP and EPD
Stick to pipelines -most have long term contracts
thus less prone to commodity prices
With the current low interest rate enviornment
large companies will continue to buy up the smaller
ones-thus more throughput -higher distributions
watch out would be run away upward interest rates
however if the higher interest rates are due to
commodity inflation-these pipelines should keep up
very well with inflation-reinvest your distributions
in the "big fish"!
After reading your post, and the replies thus far, put me in the, "its better to have diversity" camp.
You just never know what little surprise might blindside a large holding.
I really do like EPD as a long term holding though.
I also like WPZ...after their announcement a couple of weeks back about restructuring, and listening in on the CC, I feel really good about them for the next two years. Good DCF growth expected and "blessed" with growth opportunities.
And, I also like NRGP...it's residential propane business is a cash cow, and they are growing in the midstream pipeline and NG storage area. They also own a company that extracts salt from underground mines...leaving salt cavities for further expansion of their NG storage capacities.
I first agree the EPD is actually fairly well diversified, however, a group of MLPs certainly makes sense and does offer additional protection to stabilize a return. As was already stated TurboTax does my 10 MLPs just fine.
You mention diversifying to get a higher yield. A couple thoughts here. First is Factoids CAGR. Howfast is the distribution growing. Does no good to buy a MLP with a 2% higher yield if they do not grow their distribution, does it? A slower steady grower might in the longer term provide better growth.
Second is that distribution yields generally equate a balance between future growth and risk. Those MLPs with higher yields are either perceived as having less growth potential, have a riskier business, or are weaker financially. Thus the E & P sector has high yields due to risk and some of the smaller MLPs higher ones due to lack of financial strength.
EPD is my core holding and the one I bought first. Adding additional MLPs now might be a good plan.
EPD is pretty diversified. You could add other mid-stream baheamoths or ride a few one-trick ponies for a bit of diversification. But which ones and why? Diversification strickly for the sake of diversification is not necessarily a good thing. You should first figure out an investment statagy with a bit of logic...like mainly buying when it is below it's fair value and selling when things don't feel right anymore. If I could turn the clock back, I'd only have bought when the units were a bargin and I would not be concerned at all about chasing diversification. I dumped an MLP on Monday due to the "not feeling right" thing. I liked it for it's diversification when I bought it. I bought more EPD with the money. And I might add a lot more EPD since the cash has piled up and I don't see anything I really want worse then more EPD. In summary, if you find a safe bargin, go for it. If it's not safe, and that is the whole point to this type of investment, pass on it. If you don't see a safe bargin and you need to put some money to work, stick with what you have and buy more of it.
Of course you must diversify to protect your portfolio.
Use turbotax to prepare your tax. One K-1 form is same as five, ten when handling is concerned.
I suggest you look at AB, main business is wealth management. Good thing about this issue is that it has no debt. Amount of distribution is same as earning per unit. Historicaaly, this is a $80 MLP stock.
Marky, Ihave many MLP's and have no trouble with K-1s. I do have a CPA do my tax work. I have been purchasing MLP's for my chlidren and Grandaughter for 3 or 4 years and having them reinvest all distrubitions for the future.
Good luck on your investing. Some other MLPs to check out are MWE, LINE, NS,and KMP also NGLS.