Building a High Yielding Retirement Portfolio – Part 5 MLP’s

In my previous posting I discussed the need to include high-yielding securities in a retirement portfolio, in Part 2 I reviewed Preferred Stocks, in Part 3 BDC’s, in Part 4 REIT’s. In this article we’ll discuss MLP’s (Master Limited Partnerships).

A MLP is a partnership that generates income from real estate, natural resources and commodities. MLP’s are a major factor in the transportation and storage of oil and natural gas. MLP’s, similar to REIT’s and BDC’s pay little or no corporate income tax and must distribute at least 90 percent of taxable income as dividends or return of capital to investors. This results in many cases in both capital growth and high-yields. When you buy stock (units) in an MLP you become a “partner” in that MLP. The distributions are not taxed when you receive them, instead, they are considered reductions in the investment’s cost (return of capital), and you don’t have a tax liability until you sell the MLP. Your income from the MLP is reported to you on a K-1 each year.

If you are looking to get into the booming energy market and don’t want to worry about the volatility of oil and low prices of natural gas, the MLP’s that provide the pipelines and storage facilities might be your best choice. You see, these MLP’s charge for distribution and storage they aren’t effected by the price of the commodity. I’ll also warn you that like all other high-yielding investments that are subject to the volatility of changing interest rates. Many of these were heavily sold earlier this year as the talk of Fed tapering surfaced and the 10 year bond yield jumped overnight. Once interest rates calm down these can be great investments.

Here are some of my favorite MLPs you might consider:
UBS E-TRACS 2x Leveraged Long Alerian MLP (MLPC)  9+% yield
Linn Co (LNCO)   9% yield
Magellan Midstream Partners (MMP)   3.6% yield (stock is up 50% this year alone)

Check out the performance of MLPL in the past year. Not only has it out performed the S&P 500 index, but it also delivered > 9% dividend yield.


By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.