Relatively high yields. Strong recent growth. Leverage to the domestic energy renaissance. There’s a lot to like about master limited partnerships, or MLPs.
But investors were having none of it over the past few months. They started selling in late summer, then dumped them like hotcakes in October.
Take the Alerian MLP ETF (AMLP), a benchmark sector ETF that rarely moves more than a couple nickels a day. It dropped 2.4 percent on Oct. 9, then a hefty 4.5 percent on Oct. 13.
Volatility exploded and the entire sector suffered its worst week since the debt-ceiling debacle in the summer of 2011. You probably remember that cratered the S&P 500 by almost 20 percent in a short period of time.
But has anything really changed when it comes to the long-term fundamentals? I mean, we’re still talking about yields that beat the pants off of Treasuries. AMLP sports an indicated yield of around 6.1 percent, for instance, versus 2.3 percent for a 10-year Treasury Note.
Oil prices have declined, as I’ve mentioned before. But MLPs make money from transporting, storing and processing oil, natural gas, natural gas liquids and refined products — NOT from producing them. So it really doesn’t matter what a barrel of crude oil or million British Thermal Units of gas goes for. These companies still collect their “toll road” fees by helping get those energy products to market!
|Winter is still more than a month away, but it may not feel like it.|
That said, frigid weather across much of the Continental U.S. is helping spur a rally in gas prices. That, in turn, is making investors take a second look at energy stocks across the board.
Another positive for sector sentiment: The mega-deal in which Halliburton (HAL) will buy Baker Hughes (BHI) for $34.6 billion. That’s igniting speculation about other potential energy company takeovers. We’ve already seen some in the MLP sector, and I bet more are coming … ahem … down the pipeline.
So if you’re looking for income, and you’re sick of getting paid Jack Squat in Treasuries, take another look at MLPs. They’re cheaper than they were a few months ago, they’re less volatile than they were a few weeks ago, and they’re among the most attractive yield plays I see in the marketplace!
Until next time,