Master Limited Partnerships, or MLPs, were once beyond the scope of individual investors and used only by the wealthiest individuals and the big hedge funds. But that’s not the case any longer.
Today, MLPs have become mainstream investments — and that’s great news for high yield dividend investors.
Essentially, MLPs are limited partnerships that are publicly traded on the security exchanges. They combine the tax benefits of a limited partnership with the liquidity of publicly traded securities. One of the best things about MLPs is that they are taxed only once at the corporate level, leaving plenty of cash to pay back to in the form of dividends to shareholders.
From the outside, MLPs look somewhat complicated, but they really aren’t. The big difference between an MLP and a regular security is that ownership comes in the form of units as opposed to shares. This difference essentially makes you a limited partner, and hence the name.
Most MLPs are in oil- and natural gas-related businesses including energy processing and distribution. Other types of MLPs operate in a variety of businesses including coal, timber, minerals, real estate and other miscellaneous businesses. Perhaps the best thing about MLPs is that they’re capable of delivering big profits to investors.
But the question is, which MLPs are best?
The following table shows some of the best-performing MLPs so far in 2010.
| 1MO% | 3MO% | YTD% | Yield | ||
| BBEP | Breitburn Energy Partners | +3.6% | +14.8% | +61.4% | 8.9% |
| CQP | Cheniere Energy Partners | +4.4% | +11.3% | +42.3% | 9.2% |
| WPZ | Williams Partners | +0.5% | +2.6% | +41.9% | 6.2% |
| ARLP | Alliance Resource Partners | +16.1 | +24.1% | +34.47% | 5.5% |
| WES | Western Gas Partners | +5.3% | +15.8% | +30.9% | 5.5% |
| HEP | Holly Energy Partners | +8.2% | +27.3% | +28.3% | 6.4% |
| EPB | El Paso Pipeline Partners | +5.2% | +8.7% | +26.6% | 4.9% |
Breitburn Energy Partners (NASDAQ: BBEP) has delivered over 60% price appreciation this year, but it also boasts a yield of nearly 9%. Cheniere Energy Partners (AMEX: CQP) has delivered the highest yield so far this year at 9.25%, and with its price appreciation of over 42%, this MLP is definitely an income-investor’s dream. Williams Partners (NYSE: WPZ), Alliance Resource Partners (NASDAQ: ARLP) and Western Gas Partners (NYSE: WES) all are MLPs delivering big gains and stellar yields in 2010.
The final two MLPs on our Top Seven list are Holly Energy Partners (NYSE: HEP) and El Paso Pipeline Partners (NYSE: EPB). Both of these MLPs have delivered near 30% price appreciation so far in 2010, and are solid performers on the yield front.
Income investors really can’t go wrong with any of the MLPs from this list. If your objective is to find some serious upside in MLPs, then these seven funds are a great place to start your search.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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