investing

How to Earn Up to 8% Yield with Energy MLPs

Master limited partnerships can turn their tax advantages into big yields for you.

Though master limited partnerships trade like stocks, these securities have unique tax benefits that allow them to “pass through” all their income to investors, without paying corporate taxes. That generally results in solid yields.

What could go wrong: Special tax treatment for MLPs is specifically designed to help foster energy infrastructure in the U.S., so most partnerships are tied to the oil-and-gas industry. Not surprisingly, MLP share prices fell sharply as oil prices crashed over the past year. From its peak last August 29 through its January 13 low, the Alerian MLP index surrendered 21%. Hardest hit were MLPs that generate their income from exploration for and production of oil and gas. Keep in mind, too, that if you invest in an MLP, you’ll have to contend with a K-1 partnership form come tax time.

How to play them: Carefully. For starters, avoid funds that focus on MLPs. They lose the pass-through benefits that individual MLPs enjoy. As for individual firms, Kiplinger’s columnist Jeffrey Kosnett focuses on safety, so he prefers MLPs that “move, process and store all the oil and gas that drivers and everyone else will continue to consume.” His favorites: Enterprise Products Partners (EPD, $33, 4.5%), Magellan Midstream Partners (MMP, $77, 3.6%) and Plains All American Pipeline (PAA, $49, 5.5%).

Via Email: Free Energy Alerts from Kiplinger

Tim Plaehn, analyst for income investing at Investors Alley, a research service, likes Plains, too. He also favors so-called logistics MLPs, which provide services that facilitate the movement of crude oil and refined products. His recommendations: Delek Logistics (DKL, $44, 4.7%), PBF Logistics (PBFX, $23, 5.8%) and Western Refining Logistics (WNRL, $29, 4.6%). For a mega-yield, Plaehn suggests Oneok Partners (OKS, $41, 7.7%), which gathers, processes, stores and transports natural gas.

Most Popular

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How
social security

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How

It’s always smart to maximize your Social Security benefits, and if you are divorced, one way to do that might be to take them based on your ex’s earn…
May 13, 2021
Refunds for $10,200 Unemployment Tax Break to Begin This Week
Coronavirus and Your Money

Refunds for $10,200 Unemployment Tax Break to Begin This Week

The IRS will start issuing automatic refunds in mid-May to people eligible for the unemployment benefit tax exemption.
May 14, 2021
18 Worst Things to Buy at Dollar Stores
spending

18 Worst Things to Buy at Dollar Stores

These discount retailers stock plenty of bargains, but some of the merchandise isn’t worth the buck.
May 14, 2021

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
13 Dividend Stocks That Have Paid Investors for 100+ Years
stocks

13 Dividend Stocks That Have Paid Investors for 100+ Years

Here are 13 dividend stocks that each boast a rich history of uninterrupted payouts to shareholders that stretch back at least a century.
May 21, 2020
Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
May 14, 2021
Get Weekly Dividends With SoFi's New WKLY ETF
ETFs

Get Weekly Dividends With SoFi's New WKLY ETF

The fresh-faced SoFi Weekly Dividend ETF (WKLY) ups the ante on dividend frequency by paying its investors every seven days.
May 11, 2021