Avi Morris'  Instablog

This has been an unusual year for MLPs.  When it began, the Dow was dropping and MLPs went up.  The Alerian MLP Index started 2009 with a 12 point gain on the first trading day and then continued in the 190-200 trading range while stocks began another bear market.  Outperforming the Dow, especially with a large disparity, is always impressive.  In late February & early March, MLPs were caught up in the selling & sank but recovered quickly, returning to the 190-200 trading zone.  During the rebound period in the last 5 weeks, the index quietly worked its way back into the trading zone where it continues.

MLPs put in a very strong performance while stocks sold off badly but then lagged behind during the rebound.  But YTD, MLPs are up while the Dow is still down (roughly 10%).

Earnings, distribution & guidance announcements are coming out.  Today, Plains All American Pipeline (PAA) raised the Q2 distribution higher than the Q1 payment and completed the sale of $350 million in debt rated BBB with a yield of about 8¾%.  They issued favorable guidance, indicating their finances are strong.  Kinder Morgan (KMP), the largest MLP, declared a $1.05 distribution for Q2, matching Q1 & above last year.  Despite headwinds, KMP reaffirmed the intention to pay $4.20 this year while they continue a multi-billion capital investment program.

The other MLPs will be reporting.  Strong ones should have favorable reports and the weaker ones may have to cut distributions.  MLPs remain strong offering high yields which are tax efficient.  The yield spread over the 10 year Treasury bond is over 700 basis points when 200 has been consideration the common premium.  Pipeline MLPS have solid assets which can withstand the test of time.  Yields are high and their risk is less than with other high yield investments.