Investing in Oil & Gas Pipelines

Oil & gas pipeline operators transport fuel through pipelines, often over great distances. Most of these companies are structured as Master Limited Partnerships (MLPs), which helps limit costs by passing tax obligations along to shareholders. Since MLPs are required to distribute the vast majority of their earnings to shareholders, these stocks usually offer very high dividend yields. Some of the best oil stocks and best natural gas stocks are those that return high levels of current income to their investors.

Why MLPs?

  • Current Income – 5.2% distribution yield1
  • Total Return(2) Potential – 16.6% annualized return from 6/1/06 through 09/30/143
  • Attractive Risk-Adjusted Returns – Sharpe Ratio2 of 0.831
  • Tax Efficiency – MLP distributions are largely a return of capital and thus tax deferred
  • Distribution growth of the Alerian MLP Index has averaged approximately 7% per annum which has outpaced inflation, as represented by the CPI, over the time period 6/1/06 through 09/30/14
  • Low Correlation2
    0.53 to the S&P 500 TR
    0.37 to REITs
    -0.09 to the Barclays Aggregate Bond Index
  • Daily Liquidity

(1) MLPs are represented by the Alerian MLP Index. Data is as of 09//30/2014.
(2) Please see the definitions found in the Glossary toward the end of this presentation.
(3) The launch date of the Alerian MLP Index was 06/01/2006. We believe data from 06/01/2006 through the present represents multiple market cycles. Source: Alerian and Bloomberg.
A Sharpe Ratio is a measure of the excess return (or Risk Premium) per unit of risk in an investment asset or a trading strategy.