Investors searching for yield are taking a liking to master limited partnerships, or MLPs. More MLP funds such as Global X MLP ETF (MLPA - News) are hitting the market, and there are plans to launch additional offerings.
“MLP investors have historically received a generous income stream–even greater than those holding MLPs’ utility company cousins. MLPs provide current yields substantially higher than the overall market, and the best-run partnerships have been able to increase their unit holder distributions faster than any comparable class of high-income securities. Furthermore, the lack of institutional ownership in MLP units has caused the indexes’ fluctuations to act somewhat independently of other equity markets,” Abraham Bailin for Morningstar wrote in a recent ETF analysis. [Three Dividend ETFs for Investors Aiming High]
Master limited partnerships are companies that are involved with the storage and transportation of commodities such as oil or natural gas. These types of investments have a high dividend yield, giving them added allure as the yield on a 10-year Treasury note is currently around 1.8%. [Master Limited Partnerships: MLP ETFs]
MLP exchange traded products are currently offering yields in the 5% to 6% range.
The latest fund from Global X tracks the Solactive MLP Composite Index, holds 30 MLPs engaged in transportation, storage, processing, refining, marketing, exploration, production and mining of energy resources, reports Trang Ho for Investor’s Business Daily. MLPA sets itself apart by touting the lowest expense ratio in its sector, at 0.45%. The average for MLP ETFs has been 0.85%. [MLP ETFs Attract Yield Hunters]
Another feature of MLPs include the ability remain steady even when commodity prices are volatile. MLPs generate income by leasing pipelines and storage facilities, dodging exposure to commodity prices. Furthermore, MLPs are a partnership, so corporate federal and state taxes are avoided. Also, MLPs pay shareholders quarterly distributions, which are taxed at individuals’ marginal rates.[Global X Adds MLP ETF to Line Up]
MLPs do face risk just like any other sector, or asset class. They are vulnerable to changing regulation, operational issues within pipelines and lowered volume. Also, there are not automatic revenue bumps that are tied to inflation for natural gas pipelines, reports Bailin.
Other MLP ETFs trading:
Tisha Guerrero contributed to this article.
- Master limited partnerships