Master limited partnerships: Sifting through the rubble
Tim Ghriskey, chief investment officer at Solaris Asset Management in New York City, recommended MLPs last year. And he's just as bullish this year after about a 31% plunge in the Alerian MLP Index of 50 companies over the past 12 months, thanks to weak oil prices. MLPs, which trade like stocks, consist mostly of firms that own oil and gas storage or transportation facilities, particularly pipelines.
The units of partnership "have been decimated, and now they are a real bargain and offer a high yield," Ghriskey says. The Alerian index sports a yield of around 7.9%.
"Trends are still in favor of natural gas," Ghriskey says. "There is a lot of conversion from fuel oil to gas for heating, ventilation and air-conditioning systems." In any case, oil prices can easily pop back up, he says.
In addition, MLPs that own pipelines often have long-term contracts, with fees that escalate over time.
There's also a tax advantage. MLPs' payouts to investors are mostly return of capital rather than dividends, so they aren't taxed but are subtracted from your cost basis. But beware that you have to file a complicated K-1 tax form every year.