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The Only Energy MLP I Recommend — Pays a 9% Dividend

Brian Hicks

Written By Brian Hicks

Posted January 8, 2024

I recently launched a new investment service that is designed to give investors as much passive income as possible.

The name of the service is R.I.C.H. Report. R.I.C.H. is an acronym that stands for R – Retirement, I – Independent, C – Carefree and H – Healthy.

You see, it’s not just an investment service; it’s a lifestyle service.

But it all starts with having enough passive income to support the life you want to live.

R.I.C.H. Report’s portfolio something I call the Power Passive Income Portfolio – is heavily weighted in instruments like REITs, MLPs and other dividend paying stocks.

One of the mainstays in the portfolio is an oil and gas MLP.

Let me give you a quick refresher of what an MLP is.

History and Benefits of Publicly Traded Master Limited Partnerships (MLPs)

It’s quite a story!

So, back in the early ’80s, businesses, especially those in energy, were looking for smart ways to gather up some cash without having to deal with the whole corporate tax ordeal or bringing in a bunch of new shareholders. This is where the idea of a limited partnership got a bit of a remix, leading to what we now know as the Master Limited Partnership.

Now, picture this: It’s 1981, and the Apache Corporation decides to shake things up. They formed the first MLP in the United States.

Why? Well, they and many others in the energy business were feeling the heat from the oil crisis and needed a better way to fund their operations. And let me tell you, this idea caught on like wildfire.

But here’s the twist: by the mid-80s, MLPs weren’t just an energy thing; they started popping up in all sorts of sectors, from hotels to restaurants. The government, however, wasn’t too keen on losing out on corporate taxes, so in 1986 they hit the brakes with the Tax Reform Act.

This Act was like setting up a VIP list for MLPs, limiting them mostly to real estate and energy resources. The government’s message was clear: “Sure, keep using MLPs, but let’s keep it in the fields that really need heavy-duty investment, like energy.”

Fast forward to 2005, and the Energy Policy Act gave MLPs more room to play in the energy sector.

This meant they could be involved in a wider range of activities, all still within the energy realm. Since then, MLPs and energy infrastructure have become like peanut butter and jelly — a perfect match. We’re talking pipelines, storage facilities — the big, heavy stuff that keeps energy flowing.

By law, Master Limited Partnerships (MLPs) are required to distribute a significant portion of their income to shareholders, or “unitholders” as they are called in the MLP context. Specifically, MLPs must distribute nearly all of their available cash flow to unitholders. While there isn’t a specific percentage set by a universal legal mandate, the common practice and structural necessities of MLPs dictate that they typically distribute most of their income — often quoted as upwards of 90% of their earnings.

This distribution requirement is linked to the MLPs’ tax advantage status. To maintain their advantageous pass-through tax treatment, where the entity itself isn’t taxed on its profits but rather the profits are taxed when distributed to unitholders, MLPs must distribute available cash to their unitholders. This structure ensures that earnings are taxed at the individual level and avoids the double taxation typical of corporations.

And I have the perfect MLP for you.

So there you have it! MLPs started as a clever financial workaround, got super popular, then were reined in and tailored specifically for industries like energy. They’ve become the go-to for many looking to invest in steady, income-generating assets, especially when it comes to all the behind-the-scene stuff in the energy world. It’s a classic tale of innovation, regulation, and finding the right fit!

I currently own personally about 3,000 shares of my favorite oil and gas MLP. That amounts to about $110,000 in my portfolio.

I bought my first round of 1,000 shares in September 2020 for less than $18 a share.

1/5/24 EAC chart

It currently trades for $37, kicking off a 9% dividend. When I bought it over three years ago, the dividend yield was around 18%!

We just released our January issue with a new buy. You can find out more about MLPs and how to access our latest issue here.

We will always get to the good grass first,

Brian Hicks Signature

Brian Hicks

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Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy and Capital. For more on Brian, take a look at his editor’s page.

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