Morgan Stanley (NYSE: MS) has launched a new high dividend fund, an exchange traded note tied to a high income index containing dozens of MLP investments. Specifically, the Morgan Stanley Cushing MLP High Income Index ETN (NYSE: MLPY) tracks the Cushing MLP High Income Index which contains 30 MLPs that hold energy infrastructure and related shipping assets in North America.
MLP stands for “master limited partnerships.” These MLP stocks trade on public exchanges, and most MLP investments own and operate assets in the energy sector as natural resource-based companies that own, build and maintain the energy infrastructure. They are structured as partnerships rather than taxable corporations, so they do not pay federal or state income taxes at the entity level.
The business model of a typical MLP seeks the advantages of high barriers to entry, low price sensitivities and continued demand for energy-related products and services due to overall energy demand.
The MLP stocks that compose the Cushing High Income Index and make up the MLPY fund are chosen for having the highest current indicative yields among an assortment of MLPs. The “current indicative yield” of a security is defined as the last quarterly distribution annualized divided by the current security price, with adjustment in some cases made for more current information.
Over the past five years, the Cushing MLP High Income Index has produced a return of 18.78% compared to a 2.37% for the Alerian MLP Index (NYSE: AMLP). The S&P 500 gained 2.37% over that same period.
MLPY distributes quarterly coupon payments, less accrued tracking fees. The ETN is a senior, unsecured debt obligation of Morgan Stanley.
Holding MLPs inside an ETN vehicle subjects investors to credit risk but simplifies tax reporting. ETN investors receive a 1099 tax return instead of a K-1 form for tax income reporting.
MLPY’s annual fee is 0.85% and its maturity date is March 21, 2031.
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