It’s no secret we love master limited partnerships (MLPs) here at InvestorPlace. Aside from providing a portfolio much-needed growth, the pass-through entities can be a huge source of yield for investors looking for income.
However, there’s a difference between a hefty distribution yield and a HEFTY distribution yield.
Some MLPs pay more — much more — than the sector’s average. Many of these super high-yielding MLPs lie outside the boring and stable world of pipelines, gather systems and other midstream infrastructure.
As such, these MLPs and firms come with their own set of risks. But they could be a great way for investors to add some spice to their income investments.
For investors looking for something “more” than average, here are four MLPs with eye-popping dividend yields.
MLPs With Eye-Popping Dividend Yields #1: Exterran Partners, L.P. (EXLP)
There’s a big problem with extracting and moving natural gas — the molecules want to expand outward to fill its surroundings. That poses a problem when you start to deplete a reservoir or move it through a pipeline. It requires constant pressure — and applying that pressure is MLP Exterran Partners, L.P. (NASDAQ:EXLP).
EXLP is the largest supplier of compression services in the United States — providing pumps and other gear that puts the pressure back on natural gas. And keep in mind, this isn’t fracking equipment. This the necessary stuff needed after a well is tapped. The drilling slowdown should have minimal effects on EXLP’s bottom line.
That steady nature of compression demand and rental fees has allowed Exterran to become a MLP dividend stalwart. EXLP was recently included in the sector’s benchmark Alerian Index. For investors, that means a steady diet of rising dividends from the MLP. Exterran Partners has managed to increase its quarterly distributions for the past 17 quarters and features a robust 9.4% yield.
As for growing that yield, smart acquisitions of smaller compression rivals as well as drop-downs from its parent Exterran Holdings, Inc. (NYSE:EXH) will drive future increases.
MLPs With Eye-Popping Dividend Yields #2: Northern Tier Energy LP (NTI)
These are the halcyon days for the refiners. The glut of cheap mid-continent crude oil is creating some of the juiciest crack-spreads we’ve seen in years. And that’s directly benefiting downstream MLP Northern Tier Energy LP (NYSE:NTI).
NTI owns and operates an 89,500 barrel-per-day refinery in Minnesota as well as a retail network — called Super America — and a minority stake in a pipeline that feeds the refinery. The reason to love NTI is that its facility is able take advantage of feedstock crude oil coming from Canada that is often priced lower than WTI benchmarked oil.
That provides NTI with some pretty juicy margins and profits.
And as a MLP, it distributes those profits back to investors. NTI yields a high 11.3% based on the last four quarters’ dividend payouts. Notice I said “the last four quarters.” That’s because NTI is set up as a variable distribution MLP. Basically, it has an agreement to pay out nearly 100% of its cash flows back to investors. That means if it makes some serious moola, investors will benefit. So there is commodity risk with NTI.
However, with crude oil down in the dumps, the MLP should be able to keep its hefty dividend pumping.
MLPs With Eye-Popping Dividend Yields #3: Memorial Production Partners LP (MEMP)
For investors willing to gamble a bit with their MLP dollars, upstream MLP Memorial Production Partners LP (NASDAQ:MEMP) and its 12.9% dividend could be an interesting buy.
As an upstream firm, MEMP prospects for oil and profits based on the selling price. As a MLP, Memorial pays-out the vast bulk of its cash flows as dividends. That’s a problem in the current low-priced oil environment.
That’s made investors quite worried about its ability to keep paying that hefty dividend into the future.
However, the firm’s latest earnings were pretty decent and MEMP managed to keep its dividend steady. Adding in that Memorial continues to see rising production and reserves from its acreage as well as the fact that MEMP is one of the most conservatively managed upstream MLPs and you have an interesting risk/reward situation for investors.
The MLP isn’t without its risks, but if you think that we’ve seen the worst in the oil rout, then MEMP could be a big buy.
MLPs With Eye-Popping Dividend Yields #4: Yorkville High Income MLP ETF
Perhaps the best way to get some high yields from MLPs isn’t to bet on just one horse. Why not own a whole basket of them? With the Yorkville High Income MLP ETF (NYSEARCA:YMLP), you can.
YMLP tracks the Solactive High Income MLP Index, which uses screens and other criteria to focus on MLPs with high and steady distributions. Currently, the fund holds 25 firms — including refiner Calumet Specialty Products Partners LP (NASDAQ:CLMT) and propane play Ferrellgas Partners LP (NYSE:FGP).
Almost none of the ETFs portfolio is located in the midstream sector — making it a perfect pair to a more pipeline-focused MLP ETF.
And as non-pipeline play, YMLP does offer a pretty tasty quarterly dividend at 13.4%. The benefit is that dividend isn’t tied to just one high-yield MLP. It reduces the possibility that this juicy yield could vanish.
The fund is expensive to own at 4.86% in operating costs, or $486 for each $10,000 invested. However, much of that is due to tax actuals as traditional mutual funds and ETFs are allowed to own MLPs. That means YMLP must be structured as a corporation and pay taxes. However, those tax accruals can be a benefit to investors in certain kinds of situations.
All in all, YMLP makes a great choice to broadly play high-yielding MLPs.
As of this writing, Aaron Levitt does not hold a position in any of the aforementioned securities.