Analyzing 5 High Yielding MLP Stocks

When you send your money out into the world, you want to be reasonably assured it can come home whenever it wants, hopefully grown up and enriched by the world. However, finding a steady return on investment in today’s financial markets is no easy task. As the fiscal cliff approaches, China is poised for a hard landing, Ben Bernanke hints at QE3, and Greece gets the boot from the Euro, credit is tightening and it’s easy to feel hesitant about sending your money off into volatility.

Although the financial markets are anything but certain, there are a few safe harbors in the great sea of investments. One type of investment vehicle that tends to generate consistent returns is a Master Limited Partnership or MLP. Besides avoiding the double taxation of a c-corporation, there are requirements for an MLP to pay minimum quarterly distributions to limited partners (or stock investors). By contract, you are guaranteed dividend payouts at predictable dates [for more MLP news and analysis subscribe to our free newsletter].

These five solid stocks provide a steady quarterly dividend and are worth looking into.

1. ONEOK Partners LP (OKS) – 4.6%: With a five-year return total of 125.4%, this stock has obviously done quite well within the last decade. Although the dividend yield is slightly lower than some of the other picks, this limited partnership presents a stable investment with a sustainable yield. Look for risk elsewhere, as the major advantage of MLPs is the dividend yield, which needs to be steady and consistent for the long haul.
2. Kinder Morgan Partners (KMP) – 6.2%: This stock has a beta of .35, and a five-year return of 101.6% and could be a stable foundation and should help dampen volatility for your portfolio. It may not be the most exciting upside, but in investment environments that are anything but certain, this workhorse can keep your money out of the bank and help you beat inflation. This is the perfect type of stock when looking for a buy and hold MLP – low beta, solid returns and predictable upside [see also 25 Ways To Invest In Natural Gas].
3. Terra Nitrogen Company (TNH) – 7.5%: We’ve written about Terra Nitrogen before in (link). This MLP offers exposure to agricultural chemicals. Many analysts are very bullish on the future of agriculture and commodities, and this is a great way to own a company that sells nitrogen fertilizer to agribusiness.
4. Tortoise Energy Infrastructure Corp (TYG) – 7.4%: The fund contains investments in 41 MLPs with total assets of $1.2 billion, most of which are located in crude oil pipeline sector. Their goal is to grow slowly and return steady returns. Like a tortoise, slow and steady wins the race.
5. Cushing MLP Total Return (SRV) – 10.2%: SRV combines several MLPs in a fund of funds investment vehicle. It has a 12 Month Price Change of -4% and is underperforming the S&P 500 by 20%. Some may see this technical analysis as negative, but we think this stock is undervalued and should see some growth in coming years. This is a composite fund of several other MLPs, and provides exposure to multiple asset classes within a MLP. It has paid off consistent dividends of 0.23 every quarter for the last three years [see also 25 Ways To Invest In Crude Oil].

When examining an MLP, here are five additional things to keep in mind:

1. Risk-Reward Profile
2. Financial Stability
3. Dividend History and Potential
4. Relative Strength
5. Macro Sector Trends Not as Relevant

Interestingly enough most MLPs center around energy, but are not necessarily correlated with the cost of energy, and are thus seen as a more stable exposure to commodities without having to worry about the constant fluctuation of price.

With boomer investors from America struggling to find safe returns for retirement, the markets are anything but certain; investors are looking for ways to safely gain returns and beat the rate of inflation with safe investments.  Consider the above funds, or a combination thereof, so that your money can leave for a while, but still return home.

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Disclosure: No positions at time of writing.