When it Comes to Oil and Natural Gas MLP’s, Three is Better than One
by David Fessler, Investment U’s Energy and Infrastructure Expert
August 6, 2009
Much has been written about the benefits of owning oil and gas Master Limited Partnerships, or MLP’s as they’re commonly referred to.
They trade just like stocks, but are structured as limited partnerships instead of as corporations. Buyers purchase “units” instead of “shares.” This is done primarily to avoid corporate taxation, and allows more of the MLP’s profits to be passed onto the unit holder.
Of course, there’s no free lunch when it comes to taxes, so the unit holder is ultimately responsible for the taxes on the profits – potentially a complicated task when April 15th rolls around.
Despite the extra work for you or your accountant, MLP’s are just too good to overlook, especially if you have an appetite for income. Dividend yields of 7-10% or more are the norm, rather than the exception.
Just like stocks, there are good MLP’s and bad ones. Kinder Morgan Energy Partners, LP (NYSE: KMP) is the undisputed king of the oil and gas MLP’s, and sports a dividend yield of 7.85%.
The real question then becomes which ones to invest in? And what if you want to own more than one?
The easiest way to solve that problem is to let someone who has a lot of experience in evaluating and — more importantly – owning MLP’s. There’s always something to be said for having “skin in the game” so to speak.
That expert someone turns out to be Enterprise GP Holdings, LP (NYSE: EPE), itself a limited partnership. It’s in the business of evaluating and owning investments in other partnerships, primarily in the midstream energy industry and related businesses.
Currently, it holds investments in TEPPCO Partners, LP, Energy Transfer Equity, LP and Enterprise Products Partners, LP. It also holds investments in their respective general partners.
- TEPPCO Partners, LP (NYSE: TPP) owns and operates natural gas pipelines, liquefied petroleum gas pipelines, as well as natural gas gathering systems and a marine transportation system.
- Enterprise Products Partners (NYSE: EPD) provides services to both producers and consumers of natural gas, natural gas liquids and other petrochemicals. It is also one of the largest developers of pipeline and other energy infrastructure in the United States and the Gulf of Mexico.
- Energy Transfer Equity, LP (NYSE: ETE) through its subsidiaries, operates natural gas pipelines and also is engaged in retail propane operations.
Enterprise GP holdings currently sports a dividend yield of 6.59%, and trades about 12.6% higher than it did a year ago. The company is largely insulated from price swings in oil and gas since it doesn’t own the materials, but merely transports them.
So if you’re income oriented, or you’ve been thinking of investing in MLP’s but just can’t decide, an investment in Enterprise GP Holdings give you three for the price of one.
Good investing,
Dave Fessler
Related Investment U Articles:
- The Best Oil and Natural Gas Play in America
- Pennsylvania Leading the Shift to Natural Gas
- 2012 Predictions for Income Investors
- A New Favorite in Natural Gas Supply
- Income and Growth: All Wrapped Up Together in These Energy Plays
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David Fessler is the energy and infrastructure expert for Investment U.
