MLPs: Success Story in an Otherwise Dismal Quarter

The stock market suffered badly in the first quarter; most indices dropped at least 10%. As good as the March rally was, it only limited the damage done in the first quarter. However, MLPs did well.

Like the averages, they started 2009 from a depressed level, The Alerian MLP Index began the quarter at 176 and finished 15 points higher while the Dow plunged almost 1200. High yields may have attracted some investors and the Index still yields 11%. Junk bond funds had a similar track record to the averages in Q1 with a recovery in March while REITs sold off, then remained low during the March rally. Three high high yield sectors performed very differently in the last 90 days.

On the first trading day of the new year, the MLP index shot up 12 to 188. Since then, it has been pretty much traded sideways in the 190-200 range. The rally on March 31, up 2+ to 191, took it back into its trading range. Being range-bound in a difficult market is encouraging for the bulls, but the resistance level of 200 will have to be solidly broken through if MLPs want to advance.

In April, MLPs will report earnings, set distributions and give guidance. I have a feeling the economic recession and credit crisis will be shown to have a greater impact on MLPs. Kinder Morgan (KMP), the largest and best known MLP, raised almost $1 billion 3 months ago. Then they announced a good increase in the distribution to $4.20 annualized, but later in the statement said they expect to pay $4.20 in 2009 (i.e. no more increases during the year). The largest with good finances should be able to get through this difficult times with limited damage. But medium and smaller MLPs may get pinched (or worse) by the recession.

Double digit yields are common. Even the biggest ones with less risk, offer yields near 10%. Very high yields will continue to attract investors, especially when other investments offer low yields (some even near zero). MLPs may have tougher tests to pass in the second quarter. If so, they could take stronger measures to conserve cash (such as reducing distributions) as other businesses are doing. But long term prospects remain excellent for those which make it through the credit crisis.

Comments

[Delojozafado:]

THE AUTHOR TALKS UP THE ALERIAN INDEX THEN MENTIONS KMP. KMP IS A GREAT MLP AND IS GENERALLY AMONG THE TOP 3 HOLDINGS IN MANY ENERGY FUNDS.
THE (BSR) IS STRUCTURED AS A "NOTE" THAT PAYS INTEREST. SO IS MAY BE MOST SUITED FOR TAX SHELTERED INVESTORS WHO WISH TO AVOID K-1 AND UBTI ISSUES. IT MAY HAVE AT LEAST BEEN OF SOME WORTH TO MENTION (BSR)) WHICH IS AN ALERIAN INDEX INVESTMENT, IN THE ARTICLE.

Apr 02 07:47 AM

[searcher:]

Interested in KMP but in a tax advantaged account? Check out KMR.

Apr 02 10:45 AM

[Dividend Gr...:]

I second searcher. KMR is a very good choice for an IRA/ROTH IRA.. Furthermore Kinder Morgan( KMP and KMR) account for over one sixth of the Alerian MLP index..


On Apr 02 10:45 AM searcher wrote:

> Interested in KMP but in a tax advantaged account? Check out KMR.

Apr 03 03:35 AM

[thinking ahead:]

Contrary to almost everybody else I don't think KMP (or KMR) is the safest MLP, though it is the largest. I do own KMP, but worry somewhat about the exposure to CO2 during this oil down cycle. I'm not OVERLY worried, or I would have sold. But I also note that KMP has not behaved as well in the past 6 weeks or so as my other MLP holdings. I would put a HOLD on KMP, a buy on BWP and ETP and a strong buy on ETE and EPD. Disclosure: I own all of these.

Apr 08 11:51 AM

[AlanRoberts:]

I'm trying to understand the MLP world, and I keep finding different answers about whether they belong in a tax-advantaged account or a taxable account. One source says beware UBIT, another says nothing taxable, somewhere in between is maybe, but the IRA trustee handles the details.

Can someone point me at reading that gives me a comprehensive view of why KMR would be preferred for an IRA versus KMP, and how to evaulate this for other MLPs?

Thanks!

Apr 09 12:32 AM

[Georgey:]

What do you consider a fair market price minus the dividends and redistributing to debt reduction 4/20 . Price drop hurts but maybe long term not so bad ? Are you a buyer at these lower prices ?
Regards;
Georgey

Apr 21 02:27 PM

[mark joseph:]

I am confused as to the author's reference to the alerian index. He referenced no symbol. BSR is the only index I aware of and it is at 26 and change today. It had a 1 year high of 35. This cannot be the same index he is referring to as it was stated in the article that the "MLP Alerian index" traded at 176 by the end of this quarter.

Is there another index to follow out there? I would love to know.

Thanks

Apr 27 07:16 PM

[phubaiguy:]

You go to Nissan USA, cars/minivan, 270Z touring w/sport package, click on colors and 360..turn it red. That's what I lost by selling MWE too soon and BBEP too late. Whatever the taxes would have been.

May 05 12:38 AM

[treytexag:]

How about DPM for consideration here. It's had a pretty nice run up here recently, and paying strong.

May 08 03:22 PM