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.

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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.

Building a High Yielding Retirement Portfolio – Part 2 Preferred Stocks

In my previous posting I discussed the need include high-yielding securities in a retirement portfolio. In this article we’ll discuss Preferred Stocks.

Preferred stocks are positioned between common stocks and bonds. Most commonly preferred shares carry no voting rights but have a higher claim to earnings than common share and are usually less volatile than common. When the S&P 500 fell 37% in 2008, for example, the iShares preferred fund fell only 24%. Preferred shares are next in line to bond holders in the capital chain of any company. Investors can easily choose from preferred stock ETF’s or individual stocks. Investors should also understand that most high-yield stocks are affected by rising interest rates, similar to bonds.

Here are some examples of ETF’s you should consider:

  • iShares U.S. Preferred Stock ETF (PFF) 5.6% yield
  • PowerShares Preferred Portfolio (PGX) 6.8% yield
  • SPDR Wells Fargo Preferred Stock (PSK) 6.7% yield

Many of the high-yield preferred stocks are in the financial sector, including REIT’s.  Here are a few that I either currently own or have owned in the past:

  • Privatebancorp Capital Trust IV (PVTBP) 9.7% yield
  • Magnum Hunter Resources Corp (MHR/PC) 10.1% yield
  • SandRidge Energy (SDRXP) 8.2% yield

If you are a first time investor you should research a little more on how preferred stocks are priced before adding them to your portfolio. For example, SandRidge Energy (SDRXP) has a Face Value of $100, its original selling price when issues. Today it is selling for $103.75, a slight premium. The preferred pays an 8.50% “coupon rate”, however since the stock sells at a premium, you will only get paid the current 8.2%. In addition this preferred stock is “callable” at the option of the company. I wouldn’t worry too much about this, the fact is you will earn a nice yield on your investment.

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.