Speculative tech stocks feel exciting when markets are rallying, but when inflation rears its head, and interest rates rise, those same tech stocks get absolutely hammered as investors shift their focus away from risk and into stability.
Case in point, Kathie Wood's flagship exchange-traded fund ARK Innovation ETF (NYSEArca: ARKK) lost as much as 78% between February 2021 and May 2022 as investors started to price in inflation and higher rates.
When markets get choppy you want to focus on stable income rather than speculative narratives.
That's why I want to introduce you to Master Limited Partnerships (MLP), an asset class which often beats the S&P 500 on dividend yields, at least if you know where to look.
My favorite MLPs are pipeline operators because the business model is so straightforward. Exploration companies pull raw materials such as oil or natural gas out of the ground and pay a pipeline company a fixed amount of money to transport and store the oil or natural gas while it makes its way to a refinery or processing facility.
And I've found one that I think is a must-buy and ticks off all the right boxes - strong revenues and profits, lots of funds available for shareholders, and it's a business that provides something people need rather than want.
On top of that, it's currently paying dividends at a lovely 7.26%. Here's what you need to know...
The Benefits of MLPs
If you've never heard of a Master Limited Partnership, it's a business venture in the form of a publicly traded limited partnership.
To be considered an MLP, the partnership is required to distribute a set amount of cash to investors. Assuming it's well-managed, that's where the stable income comes in.
To maintain its pass-through status, at least 90% of the MLP's income must be qualifying income. This kind of income includes gains realized from the exploration, production, or transportation of natural resources or real estate.
For limited partners, 80% to 90% of the distributions are often tax-deferred. This lets MLPs offer attractive income yields, which are often substantially higher than the average dividend yield of stocks.
Why EPD Is a Must-Buy
That brings me to Enterprise Products Partners LP (NYSE: EPD), which operates more than 50,000 miles of natural gas, NGL, crude oil, refined products, and petrochemical pipelines.
In addition to its pipeline operations, EPD has approximately 260 million barrels (MMBbls) of NGL, refined products and crude oil storage capacity, and 14 billion cubic feet (Bcf) of natural gas storage capacity.
Also, it operates 23 natural gas processing plants and 25 NGL and propylene fractionators.
What I really like about EPD is its exposure to natural gas and NGL. Both are much cleaner than crude oil and coal and are widely expected to play a key role in the transition to cleaner energy sources.
Over the trailing 12-months, EPD has generated $44.66 billion and $4.55 billion in revenue and net income, respectively. That's a lot of cash that it can distribute to unit holders.
Since its IPO, the company has increased distributions 24 years in a row and returned $45.1 billion of capital to equity investors via LP distributions and unit buybacks.
At the current price, EPD is paying a very healthy 7.26% yield. That's really attractive considering the yield on US 10-year notes has fallen to 2.87%, as I write this.
It's an income play that generates stable returns in the face of volatile markets and inflation - pretty much a no-brainer buy in our current climate.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.