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MLP Portfolio Outperforms S&P 500

Master Limited Partnerships (MLPs) are similar to Real Estate Investment Trusts (REITs) in that they do not pay any income taxes. MLPs provide investors with attractive yields due to their special tax treatment. By law MLPs pay their profits directly to their shareholders. MLPs pay much bigger dividends than other dividend paying stocks because they pay no tax.

Due to their favorable tax treatment MLPs are ideal for the small investor. There are dozens of MLPs that have been delivering dependable returns to investors for many years.

In this video learn how a portfolio of MLPs produced an average return of 1,232% versus 9% for S&P 500 Index over the past ten years.

 

MLP Dividend Growth Produces 74% Annual Yield

Kinder Morgan LP is an example of a MLP that has rewarded its investors with an incredible flow of income. Kinder Morgan owns and manages oil and gas pipelines and storage facilities. Kinder Morgan is what is known as a 'midstream' pipeline company that profits from the stable flow of energy not from the price of crude oil. KMP is merely a 'toll road' company that transports energy which is a very stable business.

Although the energy toll road business is very dependable, Kinder Morgan LP has been able to consistently raise its annual distributions (dividends). The graph below displays the total distributions paid out for a $25,000 investment in Kinder Morgan LP 15 years ago. Kinder Morgan has paid out an incredible $169,925 in cash distributions on a $25,000 investment.

The increase in distributions would result in current annual distributions of $18,612 for a $25,000 investment. $18,612 in cash distributions on a $25,000 investment translates to a 74% annual yield. Imagine receiving a 74% annual yield from company in such a stable industry. Keep in mind that this 74% annual yield does not include stock price appreciation and is strictly a 'cash on cash' return. Also, the $169,925 in cash distributions would be considerably higher if quarterly distributions were reinvested in additional shares of stock which would allow for compounding of returns.