If you are currently retired, I don't envy your situation. As a result of the financial crisis, the ensuing and ongoing policies of the Federal Reserve have been rock bottom interest rates. Although creating liquidity for the markets and beneficial for the financial companies, it is devastating to savers. Unfortunately, the hardest hit people are in their golden years, those who must live off of the interest of their nest eggs. Where at one time savings accounts, time deposits (CDs), treasuries and other minimal risk investments paid decent interest rates, it seems like those days won't return for some time. Contrary to financial dogma, retirees may need to take on some more risk to boost the yield on their savings. One way to do this is with MLPs (Master Limited Partnerships). Although there is obviously more risk than a Treasury bond or savings account, I would argue that the risks are not great enough to outweigh the potential rewards, specifically a nice yield. Here are 3 MLPs that I think are good candidates for further research.
Boardwalk Pipeline Partners (BWP) - BWP currently owns and operates around 14,000 miles of pipeline as well as 11 underground storage fields. In addition, they have 7 salt dome natural gas caverns for storage in Mississippi. Total current storage capacity is approximately 196 Bcf of natural gas. Although the current prices of natural gas may affect storage rates, I would be surprised if the effect is anything more than minimal. In fact, it could be argued that if the current rate of U.S. natural gas production continues, that could lead to higher storage prices as the amount of storage lags extracted amounts. This is very unlikely though as producers have indicated they will be slowing production. Also, BWP has a lower debt level (debt/equity slightly less than 1) then many other similar MLPs, which is something that retirees who want to minimize risk should keep in mind while investigating these types of investments. Finally, BWP, with a current yield around 8%, is a major holding of Lowes Corp (L) and they currently own approximately 58% of the shares.
Oiltanking Partners, L.P. (OILT) - Having been formed in March 2011, OILT is a new kid on the block. Formed by the American subsidiary of German Oiltanking GmbH, OILT provides storage, terminals and transportation for third-party oil companies. Although currently small with a storage capacity of 18 million barrels, OILT announced a $104 million expansion of storage capacity at its Houston facilities. With a current yield of 4.5% and plans for expansion, OILT looks like it could be a promising investment with a yield that could increase over time. However, being a new player, I would be especially through in my due diligence of OILT.
Navios Maritime Partners L.P. (NMM) - Although most MLPs are in the oil and natural gas industries, there are other industries where MLPs operate. NMM is 27% owned by Navios Maritime Holdings and engages in the drybulk shipping industry. For those unfamiliar with the shipping industry, drybulk refers to transporting commodities such as coal, iron ore, grain, etc. Currently, NMM has 18 vessels managed by subsidiaries of the general partner. Although the shipping industry is a fairly easy industry to understand, those not familiar should read as many 10Ks of different shipping companies in order to grasp the terminology and aspects of the business. For those who are willing to dive in, NMM currently yields around 11%. Although I have not done in depth research into NMM, I would make sure that the distributions are somewhat sustainable, especially given the long-term nature of shipping contracts which could lead to lower shipping rates for multiple years in the future.
Hopefully this little list will kick start the search for a suitable MLP to add to your portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.