The Best Yields for the Next 10 Years

The U.S. government wants you to get 6% yields, and then give you a huge tax break on your investment. 

But it won't come from investing in well-known dividend payers like Wal-Mart (NYSE: WMT  ) , Johnson & Johnson (NYSE: JNJ  ) , and Abbott Laboratories (NYSE: ABT  ) -- despite their obvious appeal to yield-hungry investors.

If you're like me, you're probably chuckling in amusement. The government ... giving away tax breaks ... on yields earned from investments? Impossible!

But it's actually 100% true. As James Early -- advisor of Motley Fool Income Investor -- clarifies, "Technically, Uncle Sam simply wants to promote energy infrastructure, but if that also means promoting our pocketbooks, we'll take it."

And take it we will
The investments I'm referring to are "master limited partnerships," or MLPs. Back in the 1980s, Congress wanted to expand the growth of oil and natural gas pipeline facilities across the country. Since they allow citizens the right to form partnerships (which don't have to pay corporate taxes), these MLPs are able to have more money to invest in new projects, thereby advancing Congress' agenda.

But it gets even better. There's also a hidden tax benefit for the individuals who own units of MLPs, which pay out nearly all their cash to investors -- something that isn't available to non-MLP energy stalwarts like Occidental Petroleum (NYSE: OXY  ) or Marathon Oil (NYSE: MRO  ) .

Because of accounting regulations, MLPs make more in cash earnings than they do in accounting earnings -- it can be something like five times as much. But investors in MLPs are only taxed on the lower accounting earnings, while they receive a share of the larger cash earnings.

Now is the time to get in
The yields on MLPs are quite simply astronomical, even before you add in the tax benefits. MLPs currently yield about 6%, and sometimes even higher than that. Yet most investors are missing out.

Moreover, because MLPs run monopoly-like toll businesses, their cash flows are less tied to speculation than those of oil and gas companies and real estate investment trusts like American Capital Agency (Nasdaq: AGNC  ) and Digital Realty Trust (NYSE: DLR  ) .

A Wells Fargo analyst recently praised MLPs for the "fee-based stable nature of their cash flows, the diversity and breadth of their assets, investment grade credit rating, and superior access to the capital markets." And the analyst's two favorite MLPs are also recommended by James in his Income Investor newsletter.

For all these reasons, James believes that MLPs will be among the best yielders for the next 10 years. Since I know you're eager to know more, I will tell you that one of the MLPs is Magellan Midstream Partners, which operates a massive pipeline system running from Texas through the Midwest, and yields 6.2%.

To see all the MLPs that James believes are fantastic investments today, I invite you to check out his Income Investor service, completely free. You can read all about MLPs -- plus his other favorite dividend payers -- and see which ones he likes, free for 30 days. Simply click here for more information. 

This article was originally published Nov. 13, 2009. It has been updated.

Adam J. Wiederman doesn't own shares of the companies mentioned above. Wal-Mart Stores is a Motley Fool Inside Value pick. Johnson & Johnson is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a buy calls position on Johnson & Johnson. The Fool's disclosure policy is outlined here.


Read/Post Comments (11) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 04, 2010, at 10:00 AM, knp4ever wrote:

    For some high yielding dividend stocks, check out this NYSE top 100:

    http://www.topyields.nl/Top-dividend-yields-of-NYSE.php

  • Report this Comment On March 04, 2010, at 10:20 AM, pondee619 wrote:

    "The Best Yields for the Next 10 Years" but I won't tell you who they are until you give me your credit card number.

  • Report this Comment On March 04, 2010, at 10:33 AM, TMFDonauschwaben wrote:

    pondee619,

    Your comment is a bit ingenuous... I give away one of them in the article.

    -- Adam

  • Report this Comment On March 04, 2010, at 11:45 AM, pondee619 wrote:

    And yet, I don't see an MLP listed in the article's disclaimer.

    "Johnson & Johnson is a Motley Fool Income Investor recommendation" but Magellan Midstream Partners is not listed as being one.

    You give us an MLP that is not listed as being an income investor pick and I'm the one being "a bit ingenuous"?

  • Report this Comment On March 04, 2010, at 11:45 AM, pondee619 wrote:
  • Report this Comment On March 04, 2010, at 12:03 PM, abeno wrote:

    One other issue with MLPs is that the tax situation they create for individual investors can be quite complicated. My accountant has told me that he will charge extra (potentially a lot extra!) to prepare any tax returns for clients with MLP or royalty trust investments. Be sure you know what you are getting yourself into before you buy units in any MLP!

  • Report this Comment On March 04, 2010, at 3:44 PM, pondee619 wrote:

    in·gen·u·ous   

    –adjective

    1.free from reserve, restraint, or dissimulation; candid; sincere.

    2.artless; innocent; naive.

    3.Obsolete. honorable or noble.

    Synonyms

    1. frank, straightforward, open. 2. guileless.

    Adam:

    I guess, on further review, you may be right. My comment was sincere, candid, free from reserve and restraint, frank, straightforward and open. Perhaps even honorable and noble without guile. If only fool writers would aspire to such a level.

  • Report this Comment On March 04, 2010, at 3:45 PM, pondee619 wrote:

  • Report this Comment On March 04, 2010, at 6:48 PM, StockTradingFool wrote:

    Adam, thanks for the article on the advantages of MLP's, as well as an example of an MLP that Fools might want to do some research on. The information you provided is a great starting point for doing research. While there are some interesting tax implications, MLP's are definitely worth considering!

    The following is a list of the largest MLP's, all of which have yields between 5% and 10%. Fools might want to use this list in their research.

    Enterprise Products Partners LP (EPD)

    Kinder Morgan Energy Partners LP (KMP)

    Plains All American Pipeline LP (PAA)

    Energy Transfer Partners LP (ETP)

    Magellan Midstream Partners LP (MMP)

    Enbridge Energy Partners LP (EEP)

    Energy Transfer Equity LP (ETE)

    ONEOK Partners LP (OKS)

    Linn Energy LLC (LINE)

    Buckeye Partners LP (BPL)

    NuStar Energy LP (NS)

    Inergy LP (NRGY)

    MarkWest Energy Partners LP (MWE)

    Boardwalk Pipeline Partners LP (BWP)

    Williams Partners LP (WPZ)

    Suburban Propane Partners LP (SPH)

    Regency Energy Partners LP (RGNC)

    AmeriGas Partners LP (APU)

    El Paso Pipeline Partners LP (EPB)

    I personally own KMP and APU.

  • Report this Comment On March 04, 2010, at 7:27 PM, StockTradingFool wrote:

    While the article gives only one example of MLP's, it's easy to find

    information online about them using Google. Here's a list of 20 MLP's

    that are currently yielding anywhere from 5.5% to 9.3%. It's not a

    complete list of MLP's by any stretch, but Fools interested in learning

    more about MLP's should find it to be a good starting point for their

    research.

    Enterprise Products Partners LP (EPD)

    Kinder Morgan Energy Partners LP (KMP)

    Plains All American Pipeline LP (PAA)

    Energy Transfer Partners LP (ETP)

    Magellan Midstream Partners LP (MMP)

    Enbridge Energy Partners LP (EEP)

    Energy Transfer Equity LP (ETE)

    ONEOK Partners LP (OKS)

    Linn Energy LLC (LINE)

    Buckeye Partners LP (BPL)

    NuStar Energy LP (NS)

    Inergy LP (NRGY)

    MarkWest Energy Partners LP (MWE)

    Boardwalk Pipeline Partners LP (BWP)

    Williams Partners LP (WPZ)

    Suburban Propane Partners LP (SPH)

    Regency Energy Partners LP (RGNC)

    AmeriGas Partners LP (APU)

    El Paso Pipeline Partners LP (EPB)

    Sunoco Logistics Partners LP (SXL)

    I personally hold shares of KMP and APU.

  • Report this Comment On March 04, 2010, at 7:29 PM, StockTradingFool wrote:

    Sorry for the double-post... not sure what happened. I made the original post and it never showed up for me even though I refreshed the page multiple times. Of course, it showed up as soon as I created the second post!

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