This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Hunt for Yield Leads to MLPs

NEW YORK (TheStreet) -- ETF investors' search for yield has led them to Master Limited Partnership (MLP) funds over the past year, due to relatively high yields. MLPs in these funds are typically involved in the production, transportation and storage of natural resources such as natural gas. For instance the MLP, Kinder Morgan Energy Partners (KMP), owns or operates oil and natural gas pipelines as well as power plants and storage facilities.

One of the major benefits of owning MLPs is their large distributions. KMP pays out to investors on a quarterly basis. Over the past year, the fund's distribution has been approximately 7%.

There is one important element to consider, however, before adding an MLP to your portfolio. Because they are set up as partnerships, investors holding MLPs are taxed differently than investors holding traditional securities. MLPs are not taxed at the company level. Rather, tax liability generated from the partnership's gains and losses are passed on through to the shareholder. At tax time, an investor holding a company such as KMP will be presented with a K-1 form rather than a 1099.

This added complexity at tax time may be enough to dissuade investors from taking advantage of the income benefits of MLPs.

However, thanks to the introduction of exchange traded products, investors now have the opportunity to invest in baskets of popular MLPs while avoiding the headaches that can come with filing a K-1. In the past, I have promoted the JPMorgan Alerian MLP Index ETN (AMJ) as an effective, income yielding alternative to the United States Natural Gas Fund (UNG). AMJ is set up as an ETN, meaning that investors holding this fund do not actually hold shares in the individual partnerships. Rather, they hold a senior debt note issued by JPMorgan (JPM).

Over the past year, AMJ has paid investors a comfortable 6% dividend which is reported on a 1099 form.

AMJ tracks the Alerian MLP Index. This index is made up of 50 individual holdings hailing from the petroleum transportation, gathering and processing, natural gas pipeline, propane and exploration and production industries. Top positions include Enterprise Products Partners (EPD) and KMP. These two positions account for approximately 14% and 12% of the fund's total assets respectively.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,982.59 +22.02 0.13%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs