LinnCo LLC (UNKNOWN:LNCO.DL) is one of the best high yield stocks available to investors. Not only does the company offer a very compelling 9.8% yield, but its payout is very sustainable given the focus of its parent company, LINN Energy (NASDAQOTH:LINEQ), on ensuring that its distribution remains rock-solid. What makes this combination so compelling is that according to the "Rule of 72" the dividend income from LinnCo alone could double an investor's money in a little over seven years. However, income aside LinnCo offers dividend investors two big advantages over other high yielding stocks.
Unique access and unparalleled scale
LinnCo is unique among high yielding stocks in the oil and gas industry. Unlike most other really high yielding stocks in the sector, LinnCo is not structured as a master limited partnership. Instead, LinnCo is structured as a C-Corp, but with an MLP twist. The twist comes by way of the fact that its only assets are units of its MLP parent LINN Energy. However, that ownership interest in LINN Energy fuels substantial distribution income to LinnCo, which it then sends on to its investors via dividends, leading to its high yield.
Owning a big chunk of LINN Energy is a big advantage because LINN Energy is by far the largest upstream MLP in the sector, as the following slide shows.
As the chart in the lower left-hand corner of that slide shows, LINN Energy alone is nearly as large as the rest of the upstream MLPs combined. Its next largest rival, BreitBurn Energy Partners LP (NASDAQOTH:BBEPQ) is currently worth just over $4 billion. While BreitBurn Energy Partners is in the process of acquiring rival QR Energy LP (UNKNOWN:QRE.DL) for around $3 billion, the combined entity will still be less than half the size of LINN Energy. The large size of LINN Energy provides it with better access to capital, enabling it to complete larger dividend-boosting deals than its smaller rivals.
Less paperwork at tax time
Aside from having unique access to the largest upstream MLP in the sector, LinnCo's structure gives it one other big advantage over other MLPs. One of the reasons MLP yields are so high is because these entities don't pay corporate taxes. Further, because of the tax advantaged nature of an MLP, investors can defer taxes on the income that is passed through. However, those advantages come with a minor inconvenience, and that's some extra paperwork come tax time. However, LinnCo investors don't have to mess with pesky Schedule K-1 forms at tax time as it sends a standard Form 1099. This gives investors the tax advantages of owning an MLP without the extra tax paperwork.
In fact, because LinnCo isn't an MLP, it makes it an ideal investment to own in an IRA. Many IRAs actually won't allow an MLP to be owned in that account because MLPs already defer taxes. However, by owning LinnCo in an IRA investors can really save on taxes, especially in a Roth IRA, as no taxes will ever be due on income earned from owning shares of LinnCo. So with Linnco we have supreme tax advantages without any extra tax paperwork.
LinnCo really is a great high yield stock, not only because its yield is so high, but because that yield is very tax-friendly. Further, its unique access to the top upstream MLP provides its investors with unparalleled scale to a very secure dividend. That's a very compelling combination for dividend investors.
Matt DiLallo owns shares of Linn Co, LLC and Linn Energy, LLC. The Motley Fool recommends BreitBurn Energy Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.