After the Fiscal Cliff, the Future Still Looks Bright for MLPs

Investors in master limited partnerships (MLPs) have been on a good run. Since 2007, MLPs have generated a total return of 86.5% compared to just 4.5% for the S&P 500.

Does the investment potential for MLPs still look promising going forward? As usual, it's all about the government-and taxes.

MLPs got their big push with the Tax Reform Act of 1986 signed into law by President Reagan, which created a simpler tax code with fewer tax shelters. It also encouraged the development of domestic energy resources by exempting resource-heavy MLPs from corporate taxes.

Fast forward to the recent McConnell-Biden "fiscal cliff" compromise. Although the bill allayed the fears of a devastating tax hike, it stated nothing about MLPs' tax status.

There remains a remote possibility that MLPs could figure into negotiations over broader tax reform. But there are good reasons to believe that not only will the benefits that MLPs provide for infrastructure improvement be recognized and protected, but even extended.

If that happens, investors seeking the high income MLPs provide could flock to the sector in large numbers.

Opportunities Ahead - MLPs in the energy services sector-like pipeline operators, storage managers, import/export terminals and distributors-could be one of the best ways to invest. Why? Because no matter what oil and gas prices do, these MLP service businesses get paid anyway.

MLPs are also among the very few sectors that have been able to raise equity in a way that's accretive to profits immediately. And with North American oil production on track to double in a decade, there's no shortage of opportunities to lock in robust long-term cash flows from stable sources.
This, in turn, ensures strong distribution growth, which is the fuel for consistent price appreciation.

Global X MLP Exchange Traded Fund (MLPA) is a component of the D2 Capital Management Multi-Asset Income Portfolio. 

Source:  Roger Conrad, Investing Daily

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

The Jacksonville Business Journal has ranked D2 Capital Management in 

the top 25 of Certified Financial Planners in Jacksonville

D2 Capital Management is a Member of the Southside Businessmen's Club and the Beaches Business Association