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The Best Play on the Shrinking MLP Universe

Investors Alley
The Best Play on the Shrinking MLP Universe
The DCP Midstream (DCP) buyout offer earlier this month marked another master limited partnership…

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Investors Alley
The Best Play on the Shrinking MLP Universe

The DCP Midstream (DCP) buyout offer earlier this month marked another master limited partnership (MLP) coming off the board. Over the last eight years, the number of publicly traded midstream MLPs declined by 74%.

Here’s what that means for investors, especially those who like the tax-advantaged, high-yield income from MLPs…

On August 18, Phillips 66 (PSX) announced an offer to buy all of the publicly traded units of DCP for $34.75 per share. The DCP general partner interests are controlled by PSX and Enbridge, Inc. (ENB), so this deal will be done without an investor vote.

From the 1980s until the 2014-2016 energy sector crash, the MLP business structure dominated energy midstream services (pipeline, storage, and terminals). Sponsor companies like Phillips 66 owned the general partner interests, and investors like us owned limited partner units. MLP investors earned tax-advantaged and usually nicely growing distributions. General partners saw the cash flow from their ownership stake grow even faster.

Starting in late 2014, and over the next year, the price of crude oil went from more than $100 per barrel to less than $30. The MLP business model of funding growth through new debt and equity stopped working. By early 2016, the Alerian MLP index had lost 62% of its value; it has not recovered.

During the dark age of energy midstream, MLP sponsors/GPs started to roll up the limited partnerships, absorbing them into their corporate entities. For example, Kinder Morgan (KMI), which operated as the general partner, bought in Kinder Morgan Energy Partners LP. These transactions in the MLP space happened again and again. The number of midstream MLPs went from 76 in October 2014 to a current 20.

The good news is that the surviving MLPs are financially stable and pay attractive yields. Plus, most are growing distributions. The MLP structure means that income earned by investors is a non-taxable return of capital. Taxes get handled at tax time from the Schedule K-1s sent to investors. In most cases, an MLP investment will generate non-taxable income for many years.

Here are the seven MLPs with market caps over $5.0 billion. I include the current yield and year-over-year distribution growth:

  • Enterprise Products Partners LP (EPD)
    • Market cap: $58.2 billion
    • Current yield: 6.95%
    • Dividend growth: 3.3%
  • Energy Transfer LP (ET)
    • Market cap: $36.5 billion
    • Current yield: 6.4%
    • Dividend growth: 24.2%
  • MPLX LP (MPLX)
    • Market cap: $32.9 billion
    • Current yield: 8.7%
    • Dividend growth: 2.6%
  • Cheniere Energy Partners LP (CQP)
    • Market cap: $25.7 billion
    • Current yield: 5.6%
    • Dividend growth: 32.7%
  • Magellan Midstream Partners LP (MMP)
    • Market cap: $10.7 billion
    • Current yield: 8.1%
    • Dividend growth: 1.0%
  • Western Midstream Partners LP (WES)
    • Market cap: $10.7 billion
    • Current yield: 5.9%
    • Dividend growth: 31.4%
  • Plains All American Pipeline LP (PAA)
    • Market cap: $8.1 billion
    • Current yield: 6.8%
    • Dividend growth: 21%.

Some of the big dividend increases are due to companies staying conservative through the pandemic and now catching up with where distributions should be. The low dividend growth MLPs haven’t yet restarted growing payouts coming out of the pandemic.

Due to potentially adverse tax issues, midstream MLPs should not be owned in qualified retirement accounts, such as IRAs. The InfraCap MLP ETF (AMZA) provides balanced investment exposure to the listed MLPs without the tax issues. AMZA sends out Forms 1099 at tax time, but the ETF income pass through the MLP tax advantages on that income. AMZA currently yields 8.25%.That’s just one of the low-risk, high-income stocks I recommend to my Dividend Hunter members after personally vetting them. To see what else is on my list, and how I’m making double-digit income every year, join today – click here.

Everyday places to find 38.5% dividend yields in this market

  • Did you know you could collect 38.5% dividend yields whenever one of the 9,863 new mortgages gets signed today?
  • What about banking 12.9% returns whenever one of the 11 million people today fills up their tank with all the expensive gasoline?
  • Or, pocketing an incredible 25.9% yield from Americans spending $642 billion in entertainment each year whether skiing, going to the movies, or spoiling your spouse at a resort.
I’m about to show you a dozen or so amazing, but ordinary places where 38.5% income is hiding.

It’s hiding in plain sight and you could be enjoying these dividend payouts starting today.

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The Best Play on the Shrinking MLP Universe
Tim Plaehn

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International

United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

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Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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International

Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

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It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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Uncategorized

Comments on February Employment Report

The headline jobs number in the February employment report was above expectations; however, December and January payrolls were revised down by 167,000 combined.   The participation rate was unchanged, the employment population ratio decreased, and the …

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The headline jobs number in the February employment report was above expectations; however, December and January payrolls were revised down by 167,000 combined.   The participation rate was unchanged, the employment population ratio decreased, and the unemployment rate was increased to 3.9%.

Leisure and hospitality gained 58 thousand jobs in February.  At the beginning of the pandemic, in March and April of 2020, leisure and hospitality lost 8.2 million jobs, and are now down 17 thousand jobs since February 2020.  So, leisure and hospitality has now essentially added back all of the jobs lost in March and April 2020. 

Construction employment increased 23 thousand and is now 547 thousand above the pre-pandemic level. 

Manufacturing employment decreased 4 thousand jobs and is now 184 thousand above the pre-pandemic level.


Prime (25 to 54 Years Old) Participation

Since the overall participation rate is impacted by both cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

The 25 to 54 years old participation rate increased in February to 83.5% from 83.3% in January, and the 25 to 54 employment population ratio increased to 80.7% from 80.6% the previous month.

Both are above pre-pandemic levels.

Average Hourly Wages

WagesThe graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 4.3% YoY in February.   

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:
"The number of people employed part time for economic reasons, at 4.4 million, changed little in February. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."
The number of persons working part time for economic reasons decreased in February to 4.36 million from 4.42 million in February. This is slightly above pre-pandemic levels.

These workers are included in the alternate measure of labor underutilization (U-6) that increased to 7.3% from 7.2% in the previous month. This is down from the record high in April 2020 of 23.0% and up from the lowest level on record (seasonally adjusted) in December 2022 (6.5%). (This series started in 1994). This measure is above the 7.0% level in February 2020 (pre-pandemic).

Unemployed over 26 Weeks

Unemployed Over 26 WeeksThis graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.203 million workers who have been unemployed for more than 26 weeks and still want a job, down from 1.277 million the previous month.

This is down from post-pandemic high of 4.174 million, and up from the recent low of 1.050 million.

This is close to pre-pandemic levels.

Job Streak

Through February 2024, the employment report indicated positive job growth for 38 consecutive months, putting the current streak in 5th place of the longest job streaks in US history (since 1939).

Headline Jobs, Top 10 Streaks
Year EndedStreak, Months
12019100
2199048
3200746
4197945
52024138
6 tie194333
6 tie198633
6 tie200033
9196729
10199525
1Currrent Streak

Summary:

The headline monthly jobs number was above consensus expectations; however, December and January payrolls were revised down by 167,000 combined.  The participation rate was unchanged, the employment population ratio decreased, and the unemployment rate was increased to 3.9%.  Another solid report.

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