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I've been an investor in stocks as well as a buyer and writer of options for more than 20 years. My research may begin almost anywhere, from tips I've received to my favorite method, which is reading the S & P reports and discovering companies in the peer group of the one I was actually... More
  • Dividend stocks - Not just for Grandma anymore! 0 comments
    Jul 31, 2010 8:31 PM | about stocks: NRP, MWE, DPM, NGLS, CPLP, PBA, KMP
    I know you've all heard the stories of all the little old ladies out there who live off of the income they receive from those shares of blue-chip stocks they've owned since, well, since our U.S. flag had less than 50 stars on it.

    OK - now for today's reality. If earning 3/4 of 1 % at the bank isn't making you happy (or comfortable, financially speaking), then how about 7%? 10%? 15%? 

    There are certain companies out there, who remain relatively healthy, and whose share price has dropped with the economic downturn, but whose dividends have remained steady. These gems are joys to behold when those quarterly deposits hit my account.

    First off, there is a family of companies known as MLP's - Master Limited Partnerships. These companies are engaged in the transportation of oil, gas, and coal, either by pipeline or by ship. They are limited partnerships operating under a very unique set of tax laws. Owning shares of these firms doesn't make you a stockholder, but rather a limited partner. As a result, you don't receive dividends at all - technically. What you get are partnership distributions. Likewise, you don't receive a 1099 at tax time. What you get is a K1. The differences are astounding.

    First off, since you are receiving partnership distributions, much of the money you receive each quarter is designated as 'Return of Investment', and is treated simply as a refund of the money you put in to begin with. Next, you receive additional distributions which may be taxable, but often not until you sell the shares.

    So, with reduced taxation and tax deferment, already you're doing better. But wait, there's more. How about returns in the 5 - 15% range? If this is interesting to you, take a look at these companies: MWE, DPM, NGLS, CPLP, PVX, KMP, NRP.

    One of the nice aspects of companies like these is that, for the most part, they derive their income by moving fuels. These may include oil, gas, and coal. The actual cost of a barrel of oil is not really relevant to them because they don't sell oil. They transport it. Hence, while their stock price may fluctuate up or down with the price of fuels, their actual bottom lines are not usually affected by these movements. Investors buy and sell these shares on major movements of fuel prices, but those who know understand that fuel prices have little or nothing to do with the profitability of these companies.

    There are many more MLP's out there, and a list of them can be obtained by doing an internet search using the keyword, 'MLP'.

    My next post will deal with a couple of REITS that may be worth taking a look at.

    Disclosure: Long MWE, CPLP, PVX, NRP
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