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Your Second Chance to Buy the Best Yield in the Market

By Brian Heyliger
Monday, December 15, 2008

The credit freeze has hammered master limited partnerships...
 
As I explained early last month, master limited partnerships (or MLPs) are one of the best income opportunities of the next few years.
 
MLPs are a special kind of corporation... Most are in the energy business. Some are coal companies. Some are oil and gas producers. But the majority are pipeline companies – companies that move energy from place to place.
 
The U.S. government wants to encourage investment in energy infrastructure, so MLPs get a break on corporate taxes. In exchange, they're required to pay a big chunk of profit out to shareholders in the form of dividends.
 
Because they pay out most of their profits, these businesses have to borrow to grow. As you can imagine, any company that's a heavy borrower these days has seen its share price plummet. But the panic selling in this sector is a huge opportunity for income investors.
 
Last month, we covered one of the best ways to track the value in MLPs, judging their yields in the context of U.S. government bonds...
 
Over the past 16 years, MLPs have paid investors between 3% and 4% more than Treasuries. And investors have been happy to sacrifice the safety of Uncle Sam for a few extra dollars in the income column.
 
But today, MLPs pay an average 12.4%. Thirty-year government bonds pay 2.6%. MLPs have NEVER paid so much more than Treasuries. The "yield gap" is now close to 10%. I'm not the only one who thinks this is a once-in-a-lifetime opportunity...
 
Over the past three months, MLP insiders have bought about $27 million in shares of their own companies, adding millions more since we took a look in November.
 
Company
Ticker
3-Month Buys
Average Price
NuStar GP Holdings
NSH 
$11.20
$18.53
Energy Transfer Equity
ETE
$5.30
$16.92
NuStar Energy
NS
$4.90
$41.99
Targa Resources Partners
NGLS
$1.00
$9.66
Duncan Energy Partners
DEP
$0.70
$13.00
$ in millions
 
The yield on the Alerian MLP index – which follows 50 MLPs – has jumped to 12.4%. Investment fund Alerian MLP Select (BSR) tracks the index, but in only pays about 9%. It has heavy holdings in the biggest, best MLPs, which pay lower-than-average dividends.
 
I like the Claymore MLP Opportunity Fund (FMO). It's just as safe as the index, holds big names like Kinder Morgan (KMP) and Energy Transfer (ETP), and pays a higher yield (12.3%) than BSR. It's also trading at a 6% discount. If the discount closes, you could collect nearly 20% in the next year, even assuming MLP stocks stick near their lows.
 
If you missed a shot at this sector last month, there's still time. You have an unbelievable chance to make double-digit gains in MLPs over the next year, assuming the stocks go nowhere. Don't let it pass you by...
 
Good investing,
 
Brian Heyliger




Market Notes
Silver royalty company Silver Wheaton in a stealth bull market... up 51% in December.
 
Consumer-products giant Kimberly-Clark hits five-year low... down 28% in one year.
 
Warren Buffett railroad holding Union Pacific hits 52-week low.
 
Earnings today... Smith & Wesson.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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