Three reasons to include energy MLPs in your investment portfolio

 In Insights

Energy MLPs (Master limited partnerships) are an investment vehicle that’s finally getting some overdue attention from the investment community. These vehicles are designed for savvy investors seeking to boost income while diversifying their portfolios with an investment that’s not correlated to the ups and downs of the stock market.

Here are three reasons you may want to include energy MLPs in your investment portfolio:

  • A highly attractive tax-advantaged income stream. While there are both public and private limited partnerships, such as the Strategic Pipeline Income Fund, MLPs are structured to generate a tax-advantaged income for investors. Current tax laws allow for 80% of dividends to be deferred until liquidation.

We formed our Fund with the twofold objective of delivering a tax-advantaged 12% annual dividend, paid monthly, along with long-term capital appreciation. It invests in the North American midstream oil and gas market. This is a booming sector, thanks to strong consumer demand for energy and a shortage of energy infrastructure to deliver oil, gas, and other sources of energy to market basins.

Why do midstream companies generate healthy cash flows? Midstream companies tend to generate significant cash flow because a majority of their revenues are fee-based contracts or regulated tariffs. Their business model makes them less volatile investments than other energy assets. Further, it affords them ample cash to pay some of the highest-yielding dividends in the industry.

Consider this: As of September 30, 2018, the 8.0% current yield for the Alerian MLP Index far outpaced the current yield of the S&P 500 (1.9%), REITs (4.2%), and 10-year Treasury bonds (3.1%).

  • Significant long-term upside potential. For many, capital appreciation is an important consideration for investment decisions, even when an investment is generating a healthy dividend. Recognizing this priority, our fund manager seeks midstream investments in pipeline networks and other energy assets located in three growing areas: the Bakken Shale, Permian Basin, and Eagle Ford Shale. The intent of these ongoing investments is to generate long-term appreciation for Fund investors.

Not familiar with these areas? They make up the majority of the North American drilling market, which is ripe for significant and long-term infrastructure investments needed to meet energy demand.

Consider this proof point from the Interstate Natural Gas Association of America Foundation: More than $800 billion, or $44 billion per year, in midstream infrastructure investment is needed in North America by 2035 to meet U.S. and Canadian energy demand. Do you know of any other significant long-term investment opportunity than North American energy infrastructure?

  • Portfolio diversification. If you’re new to energy investing, it’s important to understand the different sectors in this industry. Our Fund intentionally focuses on the midstream sector because it provides a way to capture income and upside in the energy industry without market and environmental risks. Fund performance is based on infrastructure, not markets. Our investment strategy removes any correlation of performance to real estate investing and day-to-day stock market volatility. Further, pipeline operators, not the Strategic Pipeline Income Fund, assume environmental risks.

A little known fact to consider: Pipelines are the safest form of energy transportation available. According to the Fraser Institute, 99% of pipeline occurrences from a 10-year period didn’t harm the environment.

Are you an accredited investor? If so, are you ready to learn more about how to generate a highly attractive tax-advantaged income stream and also enjoy some capital appreciation? Then read our Fund’s Investment Summary.

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