5 Favorite MLPs for Income and Growth

NEW YORK ( TheStreet) -- With interest rates at record lows and the Federal Reserve unwilling to lift them any time soon, it's no easy feat finding steady and safe yield in today's bond market. So why not try the stock market in the form of a master limited partnership, suggests fund manager Jerry Swank.

"With interest rates at paltry levels, investors looking for high levels of income, plus an added benefit of growth, will move into the MLP asset class," says Swank, portfolio manager of the Cushing MLP Premier Fund ( CSHZX).

MLPs generally provide transportation, storage, processing, refining, marketing, exploration, production or mining of any mineral or natural resource. Interests, or units, trade on public exchanges like any other stock. Unlike owning oil futures or shares of an oil company, however, MLPs typically operate "toll road" business models that enable them to generate a tremendous amount of cash they can distribute to unit holders. In other words, they pocket fees for the services they provide, often without taking ownership of the physical commodities they transport and store.

There is another difference between MLPs and ordinary shares when it comes to taxes: MLPs are generally not subject to corporate-level taxes. They distribute the majority of their cash flow to investors in the form of quarterly distributions, which are largely treated as return of capital, making investing in MLPs highly tax efficient.

Swank recently chatted with TheStreet about his five favorite MLPs.

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El Paso Pipeline Partners ( EPB) has grown its distribution at a CAGR of 14% since its IPO in November 2007, and its parent, El Paso ( EP) is the largest interstate natural gas pipeline franchise in the U.S. Swank expects $1 billion per annum in acquisitions from El Paso through 2015, driving annual double digit percent distribution growth.

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Chesapeake Midstream Partners ( CHKM) is a newly listed MLP with built-in growth prospects, Swank says. The MLP's parent, Chesapeake ( CHK), is one of the largest natural gas producers in the U.S. and has a large inventory of drop-down assets in growing shale basins. According to Swank, Chesapeake Midstream Partners has zero debt on its balance sheet and essentially 100% fee-based contracts with minimum volume commitments and built-in fee escalators.

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Genesis Energy ( GEL) is a high-growth, diversified small-cap MLP with high-quality assets primarily in the Gulf Coast. GEL provides an integrated suite of services for the energy industry through its four distinct business segments. Swank is a fan because GEL has grown its distribution approximately 10% year over year while maintaining a conservative capital structure. Unique to GEL is its indirect exposure to fast-growing emerging markets through the products it supplies from its refinery services segment.

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Penn Virginia GP Holdings ( PVG), with its 6.5% yield, is one of the most attractively priced MLPs, Swank says. PVR is a MLP involved in the management of coal properties and the gathering and processing of natural gas. PVG has hired a new management team with a focus on growing distribution. In Swank's view, not only is PVG unusually cheap, but it has exposure to the emerging Granite Wash play.

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Enterprise Product Partners ( EPD) is the largest MLP and accesses some of the most prolific natural gas, natural gas liquids and crude oil supply basins in the U.S. The company has a leading midstream position in the Eagle Ford, Barnett and Haynesville shales that will provide strong future distribution growth. EPD recently announced it was buying its general partner, Enterprise GP Holdings, which will lower EPD's long-term cost of capital as well as increasing returns on organic projects and asset acquisitions.

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