A Performance Review Of Another 8 High Dividend MLP CEFs: All Eligible For One's Tax-Free Accounts And No K-1

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Includes: EMO, FEN, FMO, KED, KMF, KYE, KYN, SCD
by: Henry Nyce

Summary

First Trust Energy Income and Growth Fund (FEN) had the best performance over time.

Guggenheim's Fiduciary/Claymore MLP Opportunity Fund (FMO) had a reasonable performance over time.

Kayne Anderson's funds are especially suited to speculators with its high leverage ratios.

Readers who commented on my last MLP CEF article suggested another 8 CEFs that need coverage. They are Clearbridge Energy MLP Opportunity Fund Inc. (NYSE:EMO), Fiduciary/Claymore MLP Opportunity Fund (NYSE:FMO), LMP Capital & Income Fund Inc. (NYSE:SCD), First Trust Energy Income and Growth Fund (NYSEMKT:FEN), Kayne Anderson MLP Investment Company (NYSE:KYN), Kayne Anderson Energy Total Return Fund (NYSE:KYE), Kayne Anderson Midstream/Energy Fund (NYSE:KMF), and Kayne Anderson Energy Development Company (NYSE:KED).

Clearbridge Energy MLP Opportunity Fund Inc.

EMO was initiated on 6/10/2011 and since inception has an annual average return of a negative 0.18%. As of 2/17/17 it sells at 9.26% discount to its NAV of $15.01 per share. A graph displaying its market price and dividend payments is displayed below.

Source: Interactive Brokers

The top 10 holdings and asset allocation are shown below:

Source: Legg Mason Web Site

Source: Legg Mason Web Site

EMO's 9.4% yield is not an adequate justification to put it in one's portfolio. Its historical record shows negative returns from inception and a negative 10% over the past 3 years. Total expenses of the fund run around 4% with half for management and the other half for interest for its 40% leverage. The risks associated with its high leverage can be seen in the volatility of its market price over the past 2 1/2 years - a high of $25.00 to a low of $7.50 per share.

Fiduciary/Claymore MLP Opportunity Fund

FMO's inception date was 12/22/04 with an opening market price of $20.00 per share. As of 2/17/17 it was selling at $16.80 per share with a closing NAV of $15.60; a 7.69% premium. With a quarterly dividend of $0.4308 per share FMO yields a bit over 10%. A graph showing market prices and dividends over the past 5 years is displayed below.

Source: Interactive Brokers

The top 10 holdings and asset distribution as of 11/30/16 are shown below.

Source: Guggenheim Web Site

Source: Guggenheim Web Site

Since inception FMO has returned 5.16% annually, 3.73% for the last 10 years, 1.03% for the last 5 years and 30.78% last year. According to the annual report expenses are running at 5% of assets if one includes current and deferred income tax; excluding income taxes, expenses are 2.27%. When FMO begins to sell at a 5% or greater discount to NAV one could consider this MLP CEF a buy.

LMP Capital & Income Fund Inc.

The inception date for SCD was 2/24/04 and its average annual return since then was 5.1%. SCD does not major in MLPs with only about 22% of its investments in that space. A graph showing the asset allocation of SCD is displayed below.

Source: Legg Mason Web Site

SCD sells at a 12.8% discount to NAV. However since it consistently sold at a 10% or higher discount to NAV for the past 5 years, don't expect it to suddenly rise. Its current yield is 8.79% paid out at $0.31 per quarter. The graph showing market price and distributions for the past 5 years is displayed below.

Source: Interactive Brokers

The top holdings of SCD are shown below.

Source: Legg Mason Web Site

One can readily see that this fund invests in many of the best paying equities in several sectors of the economy. The fund says this about itself: "Seeks total return, emphasizing income." Total expenses run at 1.54% of assets, about 2/3 lower than those of many of the pure MLP CEFs. The fund is leveraged at 23% but shows interest expense at only 0.32% of assets. This may be the perfect fund for someone looking for some exposure to MLPs and REITs but unwilling to invest in a single asset fund.

First Trust Energy Income and Growth Fund

FEN began trading on 6/24/04 at an inception price of $20.00 per share. This is one the few high dividend energy CEFs that sells higher than it did at inception. As of 2/17/07 FEN was selling for a 3.16% premium at $27.44 per share with NAV at $26.60. Average annual returns since inception were 9.96%, for 10 years 8.28%, for 5 years 5.73%. FEN offers a yield of 8.45% paid quarterly at $0.58 per share. A graph showing its market price and distributions for the past 5 years is displayed below.

Source: Interactive Brokers

The top 10 holdings and asset distribution are shown below.

Source: First Trust Web Site

Source: First Trust Web Site

FEN uses leverage at 25% of assets level. While management fees run at 1.5% of assets and interest at 1.09% of assets, total annual expenses run at 7.65% because of income tax. FEN, like FIF, gets its energy advice from Energy Income Partners, LLC and both of these First Trust CEFs have performed well over time. Since FEN consistently sells at a premium to NAV, don't hesitate to invest in it here if it meets your criteria.

Since the next 4 funds are all from Kayne Anderson, its comparison chart that defines the differences in the funds is displayed below.

Source: Kayne Anderson Web Site

Kayne Anderson MLP Investment Company

KYN was started on 9/28/2004 at $25.00 per share and closed at $21.50 per share on 2/17/17. With NAV at $21.11 on the same date, it is selling at a 1.8% premium. KYN uses slightly over 38% leverage which puts it at the high end for leverage. Total expenses for the fund ran at 13.4% last year with 7.9% for income tax, 2.8% for interest and 2.7% for management fees. KYN currently pays $0.55 quarterly for a 10% yield. A graph showing market price and dividend history for the past 5 years is displayed below.

Source: Interactive Brokers

The top 10 holdings are displayed below.

Source: Kayne Anderson Web Site

This CEF is one of the riskiest MLP funds covered in any of my articles. It has a very high level of leverage and nearly 75% of its investments are in 10 MLPs. This high concentration of investments and high level of leverage can subject it extreme market and NAV swings. This fund is for the speculator in midstream MLPs.

Kayne Anderson Energy Total Return Fund

KYE's inception date was 6/28/2005 at $25.00 per share. It currently sells at a 6% discount from its NAV of $13.42 for $12.62 per share, a long way from its inception price. A graph showing its market price and dividend history for the past 5 years is shown below.

Source: Interactive Brokers

The graph shows that 2015-2016 were not good years for the fund. Both dividends and market price were beaten down. Its top 10 holdings are shown below.

Source: Kayne Anderson Web Site

KYE currently offers a $0.25 dividend quarterly for a 7.9% yield. It is highly leveraged at about 40% and interest expense for this leverage runs at 3.8% of assets. Add another 2.2% for management fees and expenses for a total expense ratio of 6%. KYE's performance leaves much to be desired so I suggest staying away from this fund.

Kayne Anderson Midstream/Energy Fund

KMF's inception date was 11/24/10 at $25.00 per share. Its selling price as of 2/17/2017 was $16.37, a discount of 9.4% from its NAV of $18.07. The quarterly dividend of $0.35 per share offers a yield of 8.5%. A graph of market prices and distributions for the past 5 years is displayed below.

Source: Interactive Brokers

The top 10 holdings are shown below.

Source: Kayne Anderson Web Site

The consequences of KMF's 40% leverage can be seen in the market price graph showing the huge decline from fall of 2014 to winter of 2015 - 2016 - from $40.00 to $10.00 per share. Leverage magnifies the effects of market ups and downs so one can also expect a faster price growth if the market goes up. This leverage comes at a cost of 3.8% of assets for interest payments. Management and other expenses for KMF are 2.3% making the total with interest 6.1% of assets. If one is willing to speculate on a positive future for MLPs, then this CEF is in a prime position to offer great returns.

Kayne Anderson Energy Development Company

KED started trading on 9/21/2006 at $25.00 per share and as of 2/17/17 sells at a 5.4% discount to its NAV of $21.07 with a market price of $19.93 per share. It provides the retail investor access to private MLP investments that are otherwise not available to the public. The distribution is $0.48 paid quarterly offering a 9.6% yield. A graph showing market price and distributions for the past 5 years is displayed below.

Source: Interactive Brokers

KED's top 10 holdings are shown below.

Source: Kayne Anderson Web Site

Just like other Kayne Anderson offerings, KED also uses considerable leverage at 37% of assets. Here again one can see the effects of high leverage on the price of this CEF with a 52 week low of $10.05 and a high of $20.45 per share. Expenses for 2016 ran at 11.7% of assets with 7.4% for income taxes, 1.7% for interest and 2.7% for management fees. This is another MLP CEF for the speculator on oil and gas prices and pipeline volume in North America.

Conclusion:

After reviewing 18 CEFs that invest in MLPs, 8 in this article, 8 in the previous article and 2 in a prior article, I have concluded that First Trust offers the best MLP CEFs. I recommended FIF in the first article and recommend FEN in this article. These 2 funds have been the most consistent performers of all the funds reviewed in the MLP space. FMO managed by Guggenheim is another fund that performs reasonably well and is my second choice among the group covered in this article.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.