The last 10 years have been a very rough time for the stock markets, easy to forget after the recent plunge and recovery period. The popular averages are shown below from April 28, 2000, exactly 10 years ago. Since then, the Dow is up a smidgen while the other 2 are lower.
Most MLPs however have stellar records. The comparable data (including the 10½% yield in 2000 for reinvested income) for the Alerian MLP Indices are:
Index w/reinvested income..145____841
Those are records to be proud of and show the value of reinvesting income after a winner investment has been chosen. Many healthy MLPs have graphs showing unit prices have tripled or better and the high annual yields along the way provided extra income. The current yield on the MLP index is 6.9%. This record is more impressive when compared with some of the hottest stocks back then, such as: Microsoft (MSFT), Dell (DELL), Cisco (CSCO) and even Dividend Aristocrat, Wal-Mart (WMT).
Fundamentals that produced this growth for MLPs remain in place. The country has unlimited demand (certainly over the next decade) for more infrastructure to move energy products in the US, the reasoning behind giving these businesses favorable tax treatment.
As is the case with all investments, care must be taken before investing. Some MLPs have had a difficult time getting through the financial crisis, forcing them to suspend distributions. They muddled through and are of greatest interest for those who like gambling. But healthy MLPs have done well and should continue to do well with gains from capital appreciation and income.
One last thought. The Alerian MLP Index reached an interim high 319 on Monday (April 26), just 23 below the record set in July 2007. Then it pulled back 8 off the highs to close today (April 28) at 311. The bulls are happy, willing to accept this as routine profit taking. But MLPs have had an unusually long and rapid rise in the last year. One of these setbacks will turn into a major retreat. The rapid rise of MLPs seems to be linked to another rising sector, junk bonds. When junk bonds decide to head lower, MLPs might follow them down. Debt problems in Europe drone on and are getting bigger. If that situation worsens, it has the potential to bring down the junk bond bull market, and, in turn, MLPs. But I think MLPs will take out the previous record high before a major setback.
Disclosure: No positions