d_teller

Preferred Stock ETFs Still Attractive

Doug K. Le Du's note above is right on. One only has to look at PFF's price at ca. $15/share in early March to see how the "interest" or dividend on the initial purchase price looks astronomical.

The Nine Best Natural Gas, Oil Pipelines for Income and Capital Gains

It's not the total income, but the accumulation of UBTI...the author of the review above carefully notes that the sum of UBTI limit is what's important. Unfortunately, one can't know this before the K-1's come.


On Sep 16 11:53 AM GimliJan wrote:

> One of the best articles I have read on MLP's and how they work.
> I appreciated the information about holding them in a Roth IRA as
> that is what I am doing. I had read on the forums that due to the
> tax consequences on the UBTI if you made over a $1000 a year you
> could lose the Roth IRA status and have to pay taxes on your whole
> account! I don't a large account and the $1000 a year is way more
> than I will realize in profits from the MLP portion of my portfolio.
>
> I also would like some more information on the reasons you picked
> the companies you hold and also about the "arbitrage". I bought TPP
> at $17 and have thoroughly enjoyed the run up and the merger with
> EPD. I plan on adding Pembrian and maybe WPZ.
> Thanks for a great article!

The Nine Best Natural Gas, Oil Pipelines for Income and Capital Gains

PMBIF is the "pink sheet" listing for Pembina, which pays dividends at ca. 10%/yr on a monthly basis. The Canadian Income trust withholds 15% for Cdn Tax...and in a sheltered accout, this can't be claimed as a tax credit...but it can be in a US taxable account.

You can find the info at the NASDAQ site under the "pink sheets" listings, (OTCBB) and also at www.QuantumOnline.com

which has quite a number of the Cdn Income trusts listed with their TMX(TSX) and OTC equivalent listings.


On Sep 16 06:19 PM wg wrote:

> "PMBIF. This company transports about 1/2 the oil produced in the
> western Canadian sedimentary basin, offers a current distribution
> yield of approximately 10%, and pays monthly. "
>
> all of the financial stats sites I visit say PMBIF pays no dividend/yield.
> What's up?

The Nine Best Natural Gas, Oil Pipelines for Income and Capital Gains

I most strongly disagree with the premise that it is safe or desirable to hold MLP's or other securities that issue K-1's in tax-sheltered accounts:

The problem of UBTI (Unrelated Business...Taxable Income) that has accumulated to a single taxpayer's I.D. across all the taxpayer's shelters - is really very simple:

if it exceeds $1000.00/tax year, it has to have the Fiduciary of one of the shelters file a Tax Identification Number request and pay any UBIT (tax) from the shelter to the IRS. This isn't the income from the MLP's or pipelines...it's only the profits directly passed through to the limited partners...the taxpayer... that represents the income that is "unrelated to the limited partnership registration". An example, last year, a lot of MLP's had negative UBTI or losses, due to the swoon of commodity pricing.
The previous year, many had a lot of UBTI from selling a portion of their assets or raising debt. This varies from year to year.

Fiduciaries need the copies of the K-1's, and charge fees to get a TIN (920t) for the sheltered account. This is After the tax season closes, so interest and penalties accrue. The tax payer (beneficial owner) of the shelter may NOT pay the UBI tax directly, because it is:
a. After the year of the record
b.Considered an excess contribution.

With regard to Roth's, this can disqualify the Tax-Exempt status, and has other ramifications.

In any case, all of the return of capital, losses carried forward, and other allowed depreciation from the original price of purchase are totally wasted in a tax-sheltered account...those that aren't Roth's will pay tax at marginal rates...there's no Capital Gains advantage when e.g., Enterprise' ROC or Tax-loss carry-forwards ( which reduce the capital basis of the securities in a taxable account) can't be used to offset withdrawals.

The beneficial owner has to notify the fiduciary of the sheltered account that will be used to pay the tax, because the fiduciary (Brokerage) probably doesn't "know" what's on the K-1...they don't get copies. Only the Registration agent of the MLP (the accountants) and the IRS and the tax-payer get these forms.

In addition, it hasn't yet come to pass, but it probably will, that ETF's and Holdrs and other issuers of K-1's that take delivery and hold in storage >90 days...are considered COMMODITY HOLDERS: the IRC has an explicit prohibition vs holding commodities in a tax shelter, unless one has a "self-directed" IRA, with a fiduciary (not just a brokerage or advisor) who will file the TIN and 990 Tax forms...and these charge a percentage of assets or fees from $200-2500/year.

In summary:

UBTI across all sheltered accounts with a single Taxpayers's I.D > $1000, requires a fiduciary to file and pay tax.

The various schema to reduce "basis' or defer income, are wasted in a tax sheltered account.

The costs for setting up a "self-directed" IRA can exceed $2500/year.

Today's Best Risk / Reward Income Investments, Part I: Canadian Power Stocks

Au Contraire_ Atlantic Power Units are earning income from primarily U.S. power sites...so they aren't affected by the special taxation of income trusts due in 2011...

They are exempt, as are Cdn REITS, and a few other specific trusts. Some were planning to convert to MLP's but realized that U.S. Unit holders would get whammed by a special tax on MLP's from Canada. (PGH converted last year, then reconverted to a corpn., this July to avoid the taxation to U.S. unit holders).

This special taxation provision was enacted in October, a couple of years ago, by the Harper Govt., to "prevent abuse of flow-through profits" from business trusts...and it had a severe, negative effect on a lot of Cdn Unit Trusts, except, slowly, people (investors) woke up to the facts of the trusts future write off's of various business expenses when they convert to corporations (Unit Investment Trusts can't write off depletion, etc., but Corporations can, so the tax burden may be pretty small until 2013.)

I currently hold ATPWF and many other Cdn Units, some purchased directly at the TSX and others from the "pink sheet" equivalents...when commodity prices go up, the dividends go up, if they are producers...but if they're in services or utilities, their values and dividends tend to move with the economy.

Currently, a 15% Cdn income tax is withheld on any dividends paid, but in a taxable account...this 15% is a tax-credit (whether you file a standard or deduction-filled return)on U.S. Federal returns. If foreign taxes exceed $400.00 U.S., one can still get a credit by filling out a tedious, but simple additional form, because the U.S. has a tax-treaty with Canada (and many other countries).


On Aug 24 01:32 PM Bob Mc wrote:

> Virtually all of ATPWF's revenues comes from the US. Isn't this an
> important drawback as compared to the other stocks. I have invested
> in the others and refrained from ATPWF for that reason.
> Comments?

MLPs for Tax Deferred Acounts

To "User 67133"

The Unrelated (to) Business Taxable Income (UBTI) limit is per TAXPAYER ID, across all tax-sheltered accounts (Roths, SEPs, IRA's ,401K's), etc. The K-1's go electronically to the IRS from the Fiduciary of the Business (The MLP, HOLDR. Commodity trading Index maker, such as Deutsche Bank for the DBA & others)...and the tax payer , NOT the IRA's fiduciary, gets a paper copy.

The tax-payer has to notify one of the sheltered accounts' fiduciary to prepare a IRS form 990t (and the brokerage or investment house legal dept. will send forms to be filled out and charge a fee to be paid from proceeds of that shosen IRA account for the cost of preparing a Tax-Shelter's Tax Identification Number [990t is a TIN registration form])...and then the data needs to be sent to that TIN issuer, and that Fiduciary will pay the UBIT (Unrelated Business Income Tax) to the Federal Govt.

This process can take some weeks, and always occurs after the due date for income taxes. The tax-payer can't pay directly...it would be after the fiscal year end, and be considered an "excess contribution" for the IRA.

The fees can range upwards of $200.00, and are similar to those that are used for "Self-directed IRA's" that may hold commodities, rental property and other investment real estate, collectibles and prcious metals.

The only forms the regular IRA's file to the Feds are the 1099R's and the 4698 "end-of-year" statements of contributions, sales and withdrawals.

There are a whole slew of Closed End Funds that handle all the vexatious paper work (and part of their high fees are the costs to do this), Kayne Anderson has KYE, KYN, etc. Tortoise has TYG...and others, which MAY be held in a sheltered account. Wait to invest until they trade at a significant discount to NAV, which is usually when commodities are being dumped or decreasing in value (which occurred last Fall, see "Robert Young"s comments, above).

It is best not to hold a K-1 generating security in a sheltered account, nor a Grantor Trust, such as GLD or SLV, nor a commodity fund that states that it might take physical possession of the commodity (DBA, for example), since these aren't allowed in the usual sheltered accounts.

To "Robert Moyat",

ETN's have recently been classified by the Treasury Dept., as "Bond" type investments, since they are debt offerings from an investment group. Their "interest" payments or "dividends" are considered as marginally taxable dividends. They MAY be held in sheltered accounts.

An Alzheimer's Expert Discusses the Next Generation of Drugs

Lipitor is a cholesterol-lowering drug...I don't believe it has much effect on lowering blood pressure.

Canadian Energy Trusts: The Best Long Term Income and Dollar Hedge?

To socphd71:

I believe the limit on 1040 foreign tax credits (without filing form 1116) is $400.00 U.S. ...but you could check the irs.gov site and the directions for the Fed Pub 17 (the summary guide to the 1040), which means in a taxable account you probably could receive >$2650.00 in Cdn dividends, before filling out form 1116.

Unless you buy your Cdn Trust securities from the issuer directly, all the required info will be on the 1099 that a brokerage sends...the dates and $ for purchases, sales, dividends, any non-taxable returns of capital...with the exception of any Publicly Traded Partnerhips, such as PGH, which send a fairly detailed K-1 form directly, and not via a 1099 (the brokerage doesn't send any K-1s), and that can come as late as March 30th.

Nearly all the CanRoys' dividends are qualified, and for U.S. investors, many of the Cdn REITs also issue qualified dividends. One thing to watch for ---in a taxable account---are "Stapled Units' which pay interest on a bond plus dividends (these also are known as EIS', etc.) and are common in the U.S and overseas...for taxable accounts, the portion of the distribution that is from the bond interest is not qualified for the reduced 15% rate.

The Closed-End Fund Discount Quandary

The NAV of CEF holdings can be 3-6 mos. out of date. in a falling market, such as late last year through Feb of this year, the NAV discounted by market pricing was a markets realistic analysis of a downward valuation (in the present) of the past , listed holdings...Funds that held GE, or other seemingly AAA - rated investment grade securities, appeared to have a bigger discount than those that seemed to have A-rated U.S. Treasuries, which simultaneously had a market premium in price vs their holdings values.

Regulators: An Apology

I enjoyed (comiserated with) the article posted above, by Mr. Newton.

FWIW, in the October 2008 issue of "Portfolio" magazine, beginning on page 84, ther's an article by Scott Paltrow, entitled "S.E.C. No Evil", which details the (misfeasance) or (following the Boss' injunction to 'Go Easy on Business') that I believe is a must read...

THE SEC DELIBERATELY REDUCED ITS ENFORCEMENT AND FINES, for even...criminal and egregious cases. At the present time, there's obviously going to be a lot of catch-up, and this may provide significant revenue going forward.

In the case of Madoff, with funds segregated from the actual trading section, and with "blinded" investors (both institutional and individual), there's no way the SEC could have known that the shenanigans were ongoing...except that numerous complaints and allegations were suppressed/ignored.

Remember, this article was written BEFORE the Madoff announcement. So Cox's policies of non-enforcement and slap-on-the-wrist fines led to a lot of fleecing, and a lot of pain, not just here, but in foreign banks and funds.

A major hurdle for the S.E.C. going forward, is the lack of trust by whistle-blowers; the loss of investigative reporters for the print media who have the talent and insight to follow this trail; the loss of S.E.C. personnel who actually wanted to pursue corruption...etc.

EPI: My Pick from All India Focused Funds

Does the comparison chart account for the dividends and cap. gains paid during the last calendar year?.

IFN paid a lot, and its NAV went down, subsequently. If only the NAV or the Market Price (with CEFs the Market and the Nav are often widely different), then the chart isn't very useful.

With regard to the relative holdings, the CEFs are under some reasonable restraint (unlike ICICI, HFDC and other investment banks), to purchase securities with a transparent, and verifiable cost...in other words, there may be thousands of securities available...and many may represent good value to a local, and knowledgable investor, but from overseas, the Indian SENSEX is not easy to follow, nor are its listings adequately analyzable.

I am not faulting your efforts, but wish to query the findings in deeper detail. The relative costs/expenses is useful, but it would be also interesting to compare the total holdings (number of securities, share classes, [other holdings, such as non-dividend -paying securities]), as one does for open-ended mutual funds.

Finally, is there any basis for the concentrations, such as cap-weighting?

Dividend Stocks: The Good, The Bad and the Ugly

To: AmishRakeFighter & Whisperonthe Wind...

The CanRoys, but not any xLP or Holdr or GrantorTrust are suitable for U.S. Tax-Sheltered accts.: IRA's SEP, S' and Roth's. The 15 % Cdn tax on dividends cannot be reclaimed from a tax-shelter.

But , since most are "qualified divs' for current IRS (U.S.) tax purposes, (even the Cdn REIT's divs are, although U.S. REIT divs aren't qualified) the net of the Cdn tax is an offset ...it's a tax credit on the U.S. 1040, so the current 'qualified" dividend tax has been paid at the source, because of the U.S.- Cdn. tax treaty.

After 2011, some of the CanRoys may change, some have sufficient Cdn expenses that their dividend stream will be unchanged for 2-3 additional years. Others, such as Atlantic Power Income Trust (ATP.Un/TO) have income from U.S. operations, and won't be subject to the Cdn. 2011 taxes on income produced in Canada. Some, e.g., Pembina, Enerplus, Provident, may reduce dividends, as oil/gas revenues decline, but others such as Bonterra and Boralex may increase them as the weather looks colder/longer.

There's a listing of the trusts from the TSX site that's in Xce (xls) format; and one column has the "type" of Trust...Commercial, Oil/Gas, etc.

When you go to the listing on the TSX, you can see if it's a "Stapled" unit (the combination of bond and equity, such as TimberWest Forest Products; whether it's interlisted on major U.S. exchanges, or has a Nasdaq "Pink-sheet" listing; what its business is, in some detail, etc.

There's also a note for U.S. investors, that about 1/3 of the CanRoys are not for "Foreign" investors, and you get this, and their dividend history from the link to the investor-relations section at the company's home page.

Kinder Morgan: A Kinder, Gentler Investment Opportunity

Yes, KMR or EEQ or any number of other LLC or "Holding Companies" or Parent companies of the Publicly Traded Partnership-shares of Master limited Partnerships are far better in a tax-sheltered account.

The dividends they pay, as regular, 1099 - reports will show- are from income-tax-paying corporations (unlike the LP's and Holdrs, and grantor trusts, wherein the profits & losses flow through to the limited partners). The M. L.P.'s are set up to avoid having to pay income tax.

These holding companies (or Chapter C corporations, or RICs, or Limited Liability Funds, (e.g., KYE vs KYN) are paid a percentage of the LP's profits before the limited partners get theirs...the "parent" company, for instance KMR, may get 5% of the first NN profits; 10 % of the next OO profits, 20 % of the next PP "tranche of profits" from the Parrtnerships that it "sponsors" by holding a significant portion of the Publicly-Traded Limited Partnership securities, for its own account.

When the partnership's income is tremendous, the parent company may not pay out so much...but these are quite safe to hold in a tax-sheltered acct.: there's no K-1 to delay tax-filings in a regular account either.

There's also no benefit from MLP " tax-loss carry-forwards" in a tax-sheltered account; nor is there anything but a quasi capital loss from a return of capital (which many Closed-End Funds also use to manage their income streams of constant dividends...the shares go down in value as the ROC continues).

In contrast, in a short period in a taxable account, these "tax-sheltering" tricks can be useful by converting marginally taxed stream of dividends to a reduction of basis so that a long-term cap gain appears, if the MLP shares are sold before their basis becomes negative.

Even if the chance of a >$1000.00 total of Item 20 V on the various K-1s is low--if they were unknowingly placed in a sheltered account (Item 20 V is income to the limited partner from activities that are "Unrelated Business" vs. what the tax-shelter registration of the MLP states...maybe it sold a pipeline, or a gas storage facility, when its income is supposed to be royalties collected from transferring the fuels), the hassle of contacting the IRA's fiduciary, and getting them to file for a Tax Identification Number for the IRA, and then having them file the form 990t, to pay - from the IRA - the Unrelated Business Income Tax (UBIT)...is pretty costly, because of the charges the IRA fiduciary will make to do all this paperwork...lest the sheltered accounts become TAXABLE!,

Is a 20% Yield Sustainable? Look at Atlas Pipeline Partners

If you want to try a "basket" of these MLPs, without the hassle of K-1s, one could try Tortoise's "TYG" CEF.

Is a 20% Yield Sustainable? Look at Atlas Pipeline Partners

MWE (Mark West Energy L.P), is in a similar precarious position with debt-capital-cash flow constraints...with some recent good news, but potential losses still exist.