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10 Tax-Advantaged MLPs with High Dividend Yields

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·12 min read
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In this article, we will be taking a look at 10 tax-advantaged MLPs with high dividend yields. To skip our detailed analysis of dividend investing, you can go directly to see the 5 Tax-Advantaged MLPs with High Dividend Yields.

Typical dividend stocks are already pretty useful to have on an investment portfolio for a number of reasons, such as their ability to outpace inflation and establish a passive income stream that may come in handy during your retirement. However, master limited partnership (MLP) dividend stocks may be a step ahead of even dividend stocks like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V). This is not necessarily because MLPs are particularly financially stronger or more reliable, but rather because of three different reasons.

First, these stocks are tax-advantaged since they are taxed differently as compared to corporations, and investors in MLPs generally benefit from tax deferral on returns of capital. This means that while an investor is holding units in an MLP, they only have to pay taxes on them at the time of their sale. The second reason these stocks can be attractive investments is that they are typically high-yielding companies that far outpace the average on the market. For instance, Bloomberg and the Federal Reserve have estimated that as of 2021, the current yield of MLPs stood at 14.97%, compared to 6.04% for high-yield bonds, 3.9% for real estate investment trusts, and 1.85% for equities. Lastly, and perhaps most importantly, is the fact that corporate cash flows in MLPs are returned in bulk to investors in the companies through distributions, with MLPs distributing about 80-90% of their return of capital and 10-20% of ordinary income to investors.

According to a report by Investment Management Consultants Association, Inc., the above reasons, among a number of others, have resulted in MLP investment becoming a mainstream investing strategy rather than sticking to its previous status of alternative investment strategy. We can witness the rising popularity of MLPs in recent years by the fact that about 130 MLPs were trading on major exchanges by 2014, and the market capital of these companies was about $490 billion at the time, with around $422 billion of that amount, or 82% of it, coming from energy and natural resource MLPs in the midstream field, a trend that has prevailed to date.

Investing has become difficult by the day, even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Image by Nattanan Kanchanaprat from Pixabay

Without further ado, let's take a look at the 10 tax-advantaged MLPs with high dividend yields.

Our Methodology

We have selected master limiter partnership stocks with dividend yields starting from 2% and going up to over 9%. Insider Monkey tracks the data of about 873 hedge funds, and we have also used this data to pick dividend stocks that are highly popular among hedge funds today. For each stock we have mentioned its yield and the number of hedge funds holding a stake in it, ranking them from the lowest to the highest yield. Finally, we have used analysts' ratings to determine which stocks are favorably placed in analyst and investor circles, picking stocks with mostly positive ratings and strong fundamentals.

Tax-Advantaged MLPs with High Dividend Yields

10. Blackstone Inc. (NYSE: BX)

Number of Hedge Fund Holders: 54 Dividend Yield: 2.53%

Blackstone Inc. (NYSE: BX), an alternative asset management firm, focuses on real estate private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity and multi-asset class strategies. The company ranks 10th on our list of tax-advantaged MLPs with high dividend yields. It works to invest in early-stage companies and provide capital markets services as well.

This August, Deutsche Bank analyst Brian Bedell upgraded shares of Blackstone Inc. (NYSE: BX) from Hold to Buy, while also raising his price target on the stock from $103 to $135.

In the second quarter of 2021, Blackstone Inc. (NYSE: BX) had an EPS of $0.82, beating estimates by $0.04. The company's revenue was $2.12 billion, up 90.29% year over year and beating estimates by $201.17 million. Blackstone Inc. (NYSE: BX) has gained 72.64% in the past 6 months and 89.71% year to date.

By the end of the second quarter of 2021, 54 hedge funds out of the 873 tracked by Insider Monkey held stakes in Blackstone Inc. (NYSE: BX) worth roughly $2.1 billion. This is compared to 49 hedge funds in the previous quarter with a total stake value of approximately $1.6 billion.

Like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V), Blackstone Inc. (NYSE: BX) is a good stock to invest in.

RiverPark Funds, an investment management firm, mentioned Blackstone Inc. (NYSE: BX) in its second-quarter 2021 investor letter. Here's what they said:

“Following strong first quarter results, Blackstone, our alternative asset manager, was our top contributor for the second quarter. BX continues to grow recurring revenues, with fee-related earnings up 58% year over year, as well as AUM, up 21% year over year to $649 billion.

Blackstone (as well as our other alternative asset managers Apollo and KKR) may at times face near-term mark-to-market headwinds and temporary slowdowns in investment realizations, but most of their fees (which are high-margin and recurring) are not sensitive to the market, most of its capital is long-dated or even permanent, and the company has billions of uninvested capital available to put to work (BX has $148 billion of “dry powder” or uncalled capital commitments). This combination of recurring fees plus opportunistic investing and harvesting offers a base of consistent earnings, plus the opportunity to maximize both fund performance and incentive fees, providing a strong foundation for long-term stock performance.”

9. Ares Management Corporation (NYSE: ARES)

Number of Hedge Fund Holders: 20 Dividend Yield: 2.56%

Ares Management Corporation (NYSE: ARES) is a capital market company operating as a global alternative investment manager. The company ranks 9th on our list of tax-advantaged MLPs with high dividend yields and works with three integrated businesses in the credit, private equity, and real estate markets.

This August, BMO Capital's Rufus Hone raised his price target on shares of Ares Management Corporation (NYSE: ARES) from $77 to $85. The analyst also reiterated an Outperform rating on the stock.

In the second quarter of 2021, Ares Management Corporation (NYSE: ARES) had an EPS of $0.64, beating estimates by $0.12. The company's revenue was $478.36 million, also beating estimates by $28.89 million. Ares Management Corporation (NYSE: ARES) has gained 41.23% in the past 6 months and 57.26% year to date.

By the end of the second quarter of 2021, 20 hedge funds out of the 873 tracked by Insider Monkey held stakes in Ares Management Corporation (NYSE: ARES) worth roughly $686 million. This is compared to 16 hedge funds in the previous quarter with a total stake value of approximately $565 million.

Like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V), Ares Management Corporation (NYSE: ARES) is a good stock to invest in.

8. Brookfield Renewable Partners L.P. (NYSE: BEP)

Number of Hedge Fund Holders: 20 Dividend Yield: 3%

Brookfield Renewable Partners L.P. (NYSE: BEP) is a renewable electricity and utilities company that owns and operates a portfolio of renewable power generating facilities. The company mainly works in North America, Colombia, Brazil, Europe, India, and China and ranks 8th on our list of the tax-advantaged MLPs with high dividend yields.

This July, JPMorgan's Mark Strouse raised his price target on shares of Brookfield Renewable Partners L.P. (NYSE: BEP) from $43 to $46, while reiterating a Neutral rating on the stock.

In the second quarter of 2021, Brookfield Renewable Partners L.P. (NYSE: BEP) had an EPS of -$0.13, missing estimates by $0.17. The company's revenue was $1.02 billion, up 56.53% year over year and beating estimates by $90.58 million. Brookfield Renewable Partners L.P. (NYSE: BEP) has gained 28.45% in the past year.

By the end of the second quarter of 2021, 20 hedge funds out of the 873 tracked by Insider Monkey held stakes in Brookfield Renewable Partners L.P. (NYSE: BEP) worth roughly $232 million. This is compared to 24 hedge funds in the previous quarter with a total stake value of approximately $223 million.

Like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V), Brookfield Renewable Partners L.P. (NYSE: BEP) is a good stock to invest in.

ClearBridge Investments, an investment management firm, mentioned Brookfield Renewable Partners L.P. (NYSE: BEP) in its first-quarter 2021 investor letter. Here's what they said:

“U.S. renewables utility Brookfield Renewable was another detractor. Brookfield Renewable is a pure-play renewables operator and developer headquartered in Canada and domiciled in the U.S., focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield Renewable’s globally diversified, multi-technology renewables business makes it an attractive partner. Its development pipeline stands at 18,000 megawatts, providing confidence the company can meet its targeted double-digit cash flow growth through to 2025. Shares moderated amid expectations of rising bond yields, and a cool-off on the green trade.”

7. Apollo Global Management, Inc. (NYSE: APO)

Number of Hedge Fund Holders: 37 Dividend Yield: 3.44%

Apollo Global Management, Inc. (NYSE: APO), a private equity firm, focuses on investments in credit, private equity and real estate markets. The company ranks 7th on our list of tax-advantaged MLPs with high dividend yields and is based in New York.

Chris Kotowski, an analyst at Oppenheimer, raised his price target on shares of Apollo Global Management, Inc. (NYSE: APO) this August from $62 to $67. The analyst also reiterated his Outperform rating on the shares.

In the second quarter of 2021, Apollo Global Management, Inc. (NYSE: APO) had an EPS of $1.14, beating estimates by $0.43. The company's revenue was $553.55 million, up 18.53% year over year and beating estimates by $26.87 million. Apollo Global Management, Inc. (NYSE: APO) has gained 17.57% in the past 6 months and 21.73% year to date.

By the end of the second quarter of 2021, 37 hedge funds out of the 873 tracked by Insider Monkey held stakes in Apollo Global Management, Inc. (NYSE: APO) worth roughly $2.6 billion. This is compared to 44 hedge funds in the previous quarter with a total stake value of approximately $2.4 billion.

Like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V), Apollo Global Management, Inc. (NYSE: APO) is a good stock to invest in.

6. Brookfield Infrastructure Partners L.P. (NYSE: BIP)

Number of Hedge Fund Holders: 16 Dividend Yield: 3.6%

Brookfield Infrastructure Partners L.P. (NYSE: BIP) is a utilities company that owns utilities, transport, midstream, and data businesses in North and South America, Europe, and the Asia Pacific. It ranks 6th on our list of tax-advantaged MLPs with high dividend yields and is based in Hamilton, Bermuda.

CIBC analyst Robert Catellier resumed coverage of shares of Brookfield Infrastructure Partners L.P. (NYSE: BIP) this June with an Outperformer rating. The analyst also placed a raised price target on Brookfield Infrastructure Partners L.P. (NYSE: BIP) of $60, compared to the previous $55 target.

In the second quarter of 2021, Brookfield Infrastructure Partners L.P. (NYSE: BIP) had an EPS of $0.78, beating estimates by $0.59. The company's revenue was $2.66 billion, up 36.84% year over year and beating estimates by $1.61 billion. Brookfield Infrastructure Partners L.P. (NYSE: BIP) has gained 11.13% in the past 6 months and 14.41% year to date.

By the end of the second quarter of 2021, 16 hedge funds out of the 873 tracked by Insider Monkey held stakes in Brookfield Infrastructure Partners L.P. (NYSE: BIP) worth roughly $71 million. This is compared to 12 hedge funds in the previous quarter with a total stake value of approximately $48 million.

Like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V), Brookfield Infrastructure Partners L.P. (NYSE: BIP) is a good stock to invest in.

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Disclosure: None. 10 Tax-Advantaged MLPs with High Dividend Yields is originally published on Insider Monkey.