Morningstar’s Jason Stipp and Paul Larson discussed investing in Master Limited Partnerships (MLP’s) as an attractive income producing investment. It is probably not that attractive any longer as the index for MLP’s has climbed about 50%. Yields of these oil and gas transportation companies (or should we say “Limited Partners”) have come down from 8 to 10% to 4 to 5% nowadays:
Among all the MLP’s, Larson recommended TransCanada (TRP, Financial) and Kinder Morgan Management (KMR, Financial):
Among all the MLP’s, Larson recommended TransCanada (TRP, Financial) and Kinder Morgan Management (KMR, Financial):
Larson: One is TransCanada. It’s a pipeline company. Its not structured as a MLP. It’s a traditional company up in Canada, but it is in the MLP-like businesses, the pipeline infrastructure, very stable businesses, relatively high-yield near 5% and without all the tax headaches that are associated with an MLP, and it is slightly undervalued. Our fair value estimate is $43 versus the stock that’s around 37%.
Another alternative is Kinder Morgan Management, and this is a company that is basically a different share class of one of the largest MLPs, Kinder Morgan Energy Partners. And when you buy Kinder Morgan Management, ticker KMR, you get your distributions in additional shares every quarter as opposed to getting your partnership distributions in cash. And if one wanted to generate income, they could in theory sell off those additional shares that they are getting every single quarter to generate that income.
And unlike KMP, which is an MLP, KMR is structured as a traditional corporation. So, you can indeed buy this in the qualified account, or buy it in the taxable account and not have the tax reporting requirements.
