The 25 Highest-Yielding MLPs

Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies showing that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks.

One particular area that has garnered interest over the years is master limited partnerships. Investors are drawn to MLPs for their high yields and tax deferment. MLPs don't pay taxes at the corporate level, so the tax burden then gets passed to the investor. Without getting into too much detail, because of the structure of the partnerships and the distributions, investors are entitled to a serious tax deferral. Investors should fully understand what they are in for before buying MLPs, but for those willing to do the research, it can be very profitable.

The highest yields can be very tantalizing. As long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business and driven down its stock price.

However, certain types of companies, such as MLPs, have to pay out most of their cash flow as distributions, so their yields will be higher than "normal." Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.

I ran a screen for the highest-yielding MLPs. The only limitation I've set is that the MLPs must have a market cap greater than $1 billion.

Here are the top 25 highest-yielding MLPs the screen produced:

 

Company

Market Cap (millions)

Yield

1

Cheniere Energy Partners, L.P. (NYSE: CQP  )

$2,530

10.7%

2

Inergy, L.P. (Nasdaq: NRGY  )

$3,377

10.1%

3

BreitBurn Energy Partners L.P. (Nasdaq: BBEP  )

$1,092

9.1%

4

Ferrellgas Partners, L.P. (NYSE: FGP  )

$1,715

8.9%

5

Boardwalk Pipeline Partners, LP (NYSE: BWP  )

$4,985

8.5%

6

Energy Transfer Partners, L.P. (NYSE: ETP  )

$9,410

8.0%

7

Terra Nitrogen Co., L.P. (NYSE: TNH  )

$3,427

7.9%

8

Legacy Reserves LP (Nasdaq: LGCY  )

$1,203

7.8%

9

PAA Natural Gas Storage, L.P. (NYSE: PNG  )

$1,287

7.7%

10

Penn Virginia Resource Partners, L.P. (NYSE: PVR  )

$1,837

7.6%

11

Natural Resource Partners LP (NYSE: NRP  )

$3,062

7.6%

12

Enbridge Energy Partners, L.P. (NYSE: EEP  )

$7,288

7.6%

13

NuStar Energy L.P. (NYSE: NS  )

$3,825

7.5%

14

Crestwood Midstream Partners LP (NYSE: CMLP  )

$1,005

7.4%

15

Linn Energy, LLC (Nasdaq: LINE  )

$6,699

7.3%

16

Suburban Propane Partners, L.P. (NYSE: SPH  )

$1,681

7.2%

17

Copano Energy, L.L.C. (Nasdaq: CPNO  )

$2,147

7.2%

18

TC Pipelines, LP (Nasdaq: TCLP  )

$2,331

7.2%

19

Eagle Rock Energy Partners, L.P. (Nasdaq: EROC  )

$1,335

7.2%

20

Genesis Energy, L.P. (NYSE: GEL  )

$1,781

7.0%

21

Holly Energy Partners, L.P. (NYSE: HEP  )

$1,119

6.9%

22

AmeriGas Partners, L.P. (NYSE: APU  )

$2,473

6.9%

23

CVR Partners, LP (NYSE: UAN  )

$1,776

6.7%

24

Targa Resources Partners LP (Nasdaq: NGLS  )

$2,907

6.7%

25

Kinder Morgan Energy Partners LP (NYSE: KMP  )

$23,132

6.6%

 Source: NAPTP; Capital IQ, a division of Standard & Poor's.

These MLPs are a good place to start your research, but they're not formal recommendations. Remember, their seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the yields are.

For a basket of high-yield dividend opportunities, click here to get The Motley Fool's five-page free report "13 High-Yielding Stocks to Buy Today."

Dan Dzombak's musings and articles he finds interesting can be found on his Twitter account: @DanDzombak.

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Read/Post Comments (8) | Recommend This Article (19)

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 September 01, 2011, at 12:07 PM, crsecon wrote:

    Would be fascinating to see payouts as % of actualearnings (like in real companies.) Is there any sustainability here unless selling new stock to pay old investors dividends? The pipelines WILL have to be replaced someday, you know.

  • Report this Comment On September 01, 2011, at 1:29 PM, zorro6204 wrote:

    crsecob, GAAP earnings numbers tend not to be useful for upstream MLP's due to the absurd way that hedging derivatives are accounted for, resulting in insane swings in earnings numbers, when actually cash flow is stable. The general metric distributable cash flow, DCF, including a provision for maintenance capital, is more useful, and all of these MLP's (so far as I am aware) are covering their distributions and then some. In fact, the midcap MLP's I hold this last quarter averaged 1.43 coverage. The rest of those monies are being plowed back into capital additions.

    Midstreams are a little different, most of them are still heavily influenced by hedging, but their plant and equipment are renewable, whereas upstreams deplete their reserves over time. Eventually upstreams will run into difficulty paying out legacy unitholders, but the whole sector is so new and relatively tiny that the upside room on the payback "pyramid" is practically unlimited at this point.

    Pipelines that generate mostly fee revenues probably can be measured on GAAP metrics, and they generally are the largest and have the lowest coverage in the MLP universe. Due to their size they also tend to trade at the lowest yields. I fail to see the attraction of the pipelines compared to the better returns seen in the midcap midstreams and upstreams, but to each his own. the pipeline companies are more insulated from very long term energy price drops (the others use multi-year hedging).

    BTW, the article left off VNR (soon to include ENP), currently trading at an 8.2% yield.

  • Report this Comment On September 01, 2011, at 3:06 PM, TMFDanDzombak wrote:

    @zorro6204 Thanks for your comment.

    Also, VNR didn't meet the $1 billion market cap requirement I set which is why its not on the list.

    Best,

    Dan

  • Report this Comment On September 01, 2011, at 3:13 PM, zorro6204 wrote:

    True, but VNR and ENP should be added together.

  • Report this Comment On September 02, 2011, at 11:53 PM, surfgeezer wrote:

    UAN only paid out a partial quarter, first since IPO. CEO said if full quarter had been paid it would have been .50, for 2$ year, @ today's 23.08 yield is 8.6%.

  • Report this Comment On September 03, 2011, at 12:09 PM, mm5525 wrote:

    I own several MLPs, and I would like to give my opinion about the best ones in the pipeline/midstream sector (not e&p ones like LINE) or necessarily the highest yielding.

    They are:

    EPD, PAA, MMP, OKS, EPB, & CHKM,.

  • Report this Comment On September 08, 2011, at 1:42 PM, Writerjeff2 wrote:

    In an article in the August 22nd issue of Forbes, James Murchie, president of Energy Income Partners advises against Boardwalk Pipeline Partners and Inergy as two examples of MLPs whose reported earnings don't exceed their dividends.

  • Report this Comment On September 12, 2011, at 2:31 AM, PilotVince wrote:

    Where is MMP ? It has a market cap of 6 billion.

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