Consider PTPs to Beat Dividend Taxes

Regardless of who becomes president, dividend taxes are going up. Sen. Obama has indicated an interest in taking them to 20%. Though Sen. McCain says he would like to see them remain at 15%, the current tax provision is due to expire at the end of 2010, and it's hard to imagine he will have much support from Congress to extend the current rate. Without any relief, investors will see dividends taxed at ordinary rates.

So if we know the inevitable, which asset classes will win? Municipal bonds, obviously. But publicly traded partnerships (PTPs) could be a more rewarding play, albeit a riskier one. They don't provide tax-free income, but distributions are generally tax-deferred. For the uninitiated, if you're unfamiliar with the tax advantages and nuances of these vehicles, you might want to view the trade association's Web site and speak with your accountant.

It's also important to realize that we are in an environment where investing rules can literally change overnight -- just ask any short-seller of financials. If the government were to change the tax status of PTPs, the entire group would suffer an abrupt valuation change.

Pounded for a Variety of Reasons

PTPs, more specifically the players in the midstream space, have been under pressure for several reasons. When oil and natural gas prices were moving up, the midstream players were being sold because many of them are viewed to have an inverse relationship with rising energy prices. As prices rise, demand slackens and midstream companies experience lower throughput volumes.

Then energy prices started falling and the market sold the midstream companies along with anything else remotely related to energy.

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