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For many investors, publicly traded Master Limited Partnerships can be valuable tools for diversification. As partnerships, MLPs are subject to a special tax code and avoid federal and state corporate income taxes. Hence, their distributions to their investors are partially or entirely tax-deferred.

Most MLPs are high-yielders and increase their distributions to investors each quarter, achieving a consistent dividend growth for several years. However, investing in MLPs can be tricky due to the disadvantages of holding them in tax-deferred accounts. Investors should consult their tax advisors before adding MLPs to their portfolios.

Defensive investors love high-dividend-yielding stocks that have long records of increasing payments. We believe MLPs are attractive options for conservative investors that seek downside protection. Moreover, many MLPs have become much more appealing to defensive investors due to the recent downturn in stock markets.

For such investors, we provided a list of 14 MLP stocks with high dividend yields. The market data are sourced from Fidelity. All companies in this list have annualized dividend yield of at least 5%. These stocks also have market capitalizations above $2.5 billion and positive average dividend growth over the past 5 years.

Company

Ticker

Dividend Yield

5-Year Dividend Growth

52-Week Return

Inergy LP

(NRGY)

11.02%

5.28%

-26.79%

Energy Transfer Partners

(NYSE:ETP)

8.49%

6.99%

-7.24%

Boardwalk Pipeline Partners

(NYSE:BWP)

8.31%

6.68%

-15.37%

Natural Resource Partners

(NYSE:NRP)

8.19%

5.66%

4.89%

NuStar Energy

(NYSE:NS)

8.03%

4.35%

-2.99%

Enbridge Energy Partners

(NYSE:EEP)

7.79%

2.86%

7.17%

Kinder Morgan Energy Partners

(NYSE:KMP)

6.75%

7.26%

5.81%

Plains All American Pipeline

(NYSE:PAA)

6.74%

6.27%

1.23%

Buckeye Partners

(NYSE:BPL)

6.55%

5.84%

5.76%

Markwest Energy Partners

(NYSE:MWE)

6.01%

8.76%

41.59%

Enterprise Product Partners

(NYSE:EPD)

5.96%

5.98%

10.81%

Williams Partners LP

(NYSE:WPZ)

5.56%

11.50%

32.69%

Oneok Partners

(NYSE:OKS)

5.46%

4.25%

23.90%

Magellan Midstream Partners

(NYSE:MMP)

5.22%

6.33%

25.87%

AVERAGE

7.15%

6.29%

7.67%

The average dividend yield of MLP stocks on our list is 7.15%, while their 5-year average dividend growth is 6.29%. In the last 52 weeks, these stocks returned 7.67%, vs. 2.93% for the SPY. Only four stocks in this group had a loss during the past 12 months, whereas five stocks – MWE, EPD, WPZ, OKS and MMP – provided double digit returns in the same period.

Here are the top 10 MLP stocks with the highest dividend yields on our list:

Inergy LP (NRGY) is a US energy partnership distributing propane in the United States. NRGY lost -26.79% in the past 12 months and has an 11.02% dividend yield. In the past 5 years, NRGY increased its dividend payments by 5.28% annually. The stock recently traded at $25.60 and has a market cap of $3.35B. Jean-Marie Eveillard’s First Eagle holds the largest NRGY position among the 300+ funds we are tracking.

Energy Transfer Partners (ETP) is a limited partnership that operates in natural gas transportation business in the United States. ETP lost -87.24% during the past 12 months, and the stock now has an 8.49% dividend yield. In the past 5 years, ETP increased its dividend payments by 6.99% annually. The stock recently traded at $42.13 and has a market cap of $8.82B. Jim Simons is the most prominent ETP investor (check out billionaire Jim Simons’ favorite stocks).

Boardwalk Pipeline Partners (BWP) is an American energy partnership that provides natural gas transportation and storage services in the United States. BWP lost -15.37% during the past 12 months, and the stock now has an 8.31% dividend yield. In the past 5 years, BWP increased its dividend payments by 6.68% annually. The stock recently traded at $25.28 and has a market cap of $5.02B. Jim Simons and Chuck Royce are among BWP investors.

Natural Resource Partners (NRP) is a limited partnership that owns and manages coal regions in the United States. NRP gained 4.89% during the past 12 months and the stock now has a 8.19% dividend yield. In the past 5 years, NRP increased its dividend payments by 5.66% annually. The stock recently traded at $26.38 and has a market cap of $2.80B. Chuck Royce had nearly $20 million in NRP at the end of June 2011 (see Chuck Royce’s other stock holdings here).

NuStar Energy (NS) is an American partnership that operates petroleum terminals and provides petroleum transportation services. NS lost -2.99% during the past 12 months, and the stock now has a high dividend yield of 8.03%. In the past 5 years, NS increased its dividend payments by 4.35% annually. The stock recently traded at $54.53 and has a market cap of $3.52B. Jean-Marie Eveillard has the largest NS position among the funds we are tracking.

Enbridge Energy Partners (EEP) is an American energy partnership providing crude oil, liquid petroleum and natural gas transportation and storage services in the United States. EEP gained 7.17% during the past 12 months and it has a 7.79% dividend yield. In the past 5 years, EEP increased its dividend payments by 2.86% annually. The stock recently traded at $27.35 and has a market cap of $7.47B. Jim Simons is the most prominent EEP investor.

Kinder Morgan Energy Partners (KMP) is a U.S. energy partnership providing energy products transportation and storage services. KMP has a 6.75% dividend yield and returned 5.81% during the past 12 months. In the past 5 years, KMP increased its dividend payments by 7.26% annually. The stock recently traded at $68.13 and has a market cap of $22.46B. Michael Messner's Seminole Capital has the largest KMP position, holding more than $20 million of the stock.

Plains All American Pipeline (PAA) is a limited partnership that provides energy products transportation, storage and marketing services in the United States and Canada. PAA has a 6.74% dividend yield and returned 1.23% in the past 12 months. In the past 5 years, PAA increased its dividend payments by 6.27% annually. The stock recently traded at $58.31 and has a market cap of $8.71B. Dmitry Balyasny had nearly $40 Million in PAA at the end of June 2011.

Buckeye Partners (BPL): Buckeye Partners is a U.S. energy partnership that distributes petroleum in the United States. BPL returned 5.76% during the past 12 months and it now has a 6.55% dividend yield. In the past 5 years, BPL increased its dividend payments by 5.84% annually. The stock recently traded at $61.87 and has a market cap of $5.75B. John Phelan’s MSD Capital and Michael Messner’s Seminole Capital are the most prominent BPL investors.

Markwest Energy Partners (MWE) is a U.S. partnership that provides natural gas transportation and processing services in the United States. MWE has a 6.01% dividend yield and gained 41.59% during the past 12 months. In the past 5 years, MWE increased its dividend payments by 8.76% annually. The stock recently traded at $46.57 and has a market cap of $3.69B. Jim Simons is among MWE investors.

Source: 14 MLPs For Dividend Investors