The 5 Steadiest, Highest-Yielding Master Limited Partnerships

Joe Goldman  |

Master Limited Partnerships, or MLPs, have emerged as among the market's most most profitable and popular investments for a number of reasons.

Most MLPs trade over public exchanges just like a normal stock, but have the tax benefits of a limited partnership. Their high cash distributions are taxed at an investor’s normal tax rate, which sometimes make them more attractive investments than regular high-yielding stocks.

MLPs also have immense exposure to the American energy revolution, which some experts predict will drive the U.S. to energy independence within the next decade. Many MLPs are in the business of producing, processing, and transporting oil and gas, so these partnerships figure to play integral roles in the American energy boom for years to come.

The following MLPs have market caps above $2 billion and boast ultra-high yields of at least seven percent. Moreover, these partnerships have either maintained or raised quarterly distributions since 2007, indicating an ability to withstand economic downturns and a commitment to providing investors with strong yield protection.

NuStar Energy (NS)

Share Price: $45.32

Quarterly Distribution: $1.10

Yield: 9.71 percent

NuStar Energy is engaged in the storage, terminalling, transportation, refining, and marketing of petroleum products. The San Antonio-based partnership is expanding its business overseas and currently has over 8,500 miles of pipeline, 87 oil distribution terminals, and 50 percent ownership stakes in two asphalt refineries.

NuStar initiated its quarterly distribution in May of 2007 and has increased its distribution at least once every year since. Because of weakness in asphalt and disappointing guidance in its last quarter, NuStar shares have significantly pulled back in recent months, making it one of the highest yielding MLPs on the market.

Enbridge Energy Partners (EEP)

Share price: $31.13

Quarterly Distribution: $0.54

Yield: 6.97 percent

Enbridge Energy Partners owns and operates oil and natural gas pipelines throughout North America. The MLP moves 13 percent of U.S. daily imports, which makes Enbridge the largest single conduit of crude oil in America. The company prides itself on an attractive yield, low-risk business model, and numerous growth projects.

To spur growth, Enbridge plans to expand its extensive network of pipelines and increase its daily barrel capacity within certain projects. Enbridge historically outperforms its peers and has offered partners an outstanding yield since 1992. It most recently raised its distribution in Q3 2011 and has a 20-year history of distribution increases.

Energy Transfer Partners (ETP)

Share Price: $50.50

Quarterly Distribution: $0.89

Yield: 7.04 percent

Energy Transfer Partners owns and operates around 47,000 miles of oil, refined products, and natural gas pipelines in the United States. The company does a great deal of business in Texas and recently acquired Sunoco, which owns 7,900 miles of pipelines and approximately 40 product terminals.

Energy Transfer Partners has yielded between five and nine percent since October of 2006, when it initiated a 75-cent dividend. The MLP is up 18 percent plus dividends year-to-date and has outperformed the stock market since the recession bottom, after distributions.

Natural Resource Partners (NRP)

Share Price: $20.67

Quarterly Distribution: $0.49

Yield: 10.64 percent 

Natural Resource Partners is an MLP that is principally engaged in owning and managing mineral reserve properties. Its operations are focused leasing coal, oil, and gas properties, receiving royalty payments from lessees. The company recently announced a major expansion into the Bakken to proliferate its oil and gas operations.

Natural Resource Partners has provided investors with excellent yield protection since it went public in 2003. Although partners are glad that the MLP has more than doubled its quarterly distribution since its IPO and provides an outstanding cash yield, shares have dropped over 37 percent since the beginning of 2011 amid declining natural resource prices, erasing gains from cash distributions.

Dishonorable Mention: Linn Energy (LINE)

Share Price: $22.79

Monthly Distribution: $0.24

Yield: 12.75 percent

Linn Energy is an independent oil and gas company with properties and energy operations across the United States. The company, which trades as a corporation but has a partnership tax structure, has paid a consistent distribution since it went public in 2006 and recently acquired Berry Petroleum (BRY) to expand its energy portfolio.

However, the SEC has launched an informal inquiry into Linn’s financial statements, which may not be in compliance with the law. Consequently, Linn Energy is under immense public scrutiny and selling pressure, sending the stock down over 40 percent in recent months. The company also inexplicably moved from paying a quarterly distribution to a monthly distribution, indicating there could be something astray with Linn’s cash flow accounting practices.

More information on Linn Energy's SEC inquiry is available here

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DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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