Ditch Those Losing Bonds and Add This Tax-Advantaged Investment Instead
After one of the worst quarterly performances for bonds in some time, a common question in this environment is whether investors should retain bonds as part of their investment allocation. While the diversification benefits of investing in fixed income securities are substantial over time, it’s difficult to justify investing in bonds in the current environment with yields set to rise and inflation eating away at any nominal return. Contrary to conventional wisdom, the opportunity still exists for investors to create a reliable stream of income from the equity markets. There are several appealing dividend strategies that investors can incorporate into their investment mix including blue chip dividend-paying stocks, real estate investment trusts (REITs), and Master Limited Partnerships (MLPs).
Investing in companies that have a history of raising dividends can be a very reliable indicator of future earnings growth. Corporate directors know far better than anyone else the details and financial condition of their companies, including the outlook for future earnings growth. Management will only raise dividends if they have every reason to believe that future earnings growth will be able to sustain higher dividend payouts. A steady trend of rising dividends can alert investors to healthy, growing businesses.
Due to their favorable tax treatment, this type of high-yield, high-quality investment vehicle has been providing investors with favorable returns for many years. There are countless and relatively unknown MLPs that have consistently raised their dividends over a long timeframe, providing investors with high returns. MLPs trade on major stock exchanges and do not pay income taxes.
MLPs are different than other traditional investment structures – they are partnerships. A general partner is responsible for running the MLP, and individual investors serve as the limited partners. MLPs must pay their profits directly to shareholders and pay much bigger dividends because they pay no tax. The income generated from the MLP is allocated amongst all partners in proportion to their ownership interest.
Relative to dividend-paying stocks, MLPs are relatively unknown and are largely ignored by the financial media. MLPs are able to sidestep the IRS and pass their earnings directly to shareholders making them an ideal investment for individual investors.
Investing in MLPs also comes with a special tax benefit for MLP dividends which are referred to as distributions. The IRS considers 80-90% of MLP distributions as a return of capital, which means investors can defer taxes on their gains for many years until they sell their shares. MLPs have attracted a diverse set of companies in many industries due to their favorable tax treatment.
Below we will analyze an MLP within the Zacks Oils and Energy sector, which is currently ranked the #1 sector out of 16 sectors. By investing in stocks located within the top sectors, we can dramatically improve our odds of success.
Enlink Midstream, LLC (ENLC)
Enlink Midstream is an independent company that provides midstream energy services domestically. ENLC is engaged in the gathering, processing, transporting, and selling of natural gas and crude oil. The company’s energy asset network includes approximately 12,100 miles of pipelines along with 22 natural gas processing plants and a crude oil trucking fleet. Enlink Midstream was founded in 2013 and is headquartered in Dallas, TX.
ENLC boasts top rankings for each of our Zacks Style Score categories, paving the way for an overall ‘A’ VGM score. The midstream energy company most recently reported Q4 EPS back in February of $0.11, an 83.33% beat over the $0.06 consensus estimate. Revenues of $2.24 billion also beat expectations by 19.03%. Shares have been on a tear, advancing more than 157% in the past year.
EnLink Midstream, LLC Price and EPS Surprise
Estimates for growth in the first quarter appear favorable, with analysts expecting first-quarter EPS of $0.03. This would translate to a 200% improvement relative to the same quarter last year. Revenues are anticipated to climb 32.24% to $1.65 billion. ENLC is set to report the Q1 results on May 3rd.
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EnLink Midstream, LLC (ENLC) : Free Stock Analysis Report
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