Seriously. Alerian MLP ETF (AMLP) pays a dividend which now reaches a staggering 8.2% (read: eight points –two). Additionally, the fund regularly increases its payouts. It serves 12% more today than twelve months ago!
As a result, AMLP is so popular that investors are keeping the price high!
Seriously, check out this quarter-end stock price chart. AMLP’s stock price could drift for one or two quarters. maximum. This is why all the meanders lower constitute excellent buying opportunities:
AMLP is up 19% since we added it to our Contrarian Earnings Report portfolio a little over a year ago. Despite this exceptional performance of an income stock, it may well be the one missed by most simple investors.
These salad days for AMLP seem to last forever. But it wasn’t always this way. The catalyst for the fund’s consistent dividends has been the energy market, which recovered significantly in 2020.
Previously, this fund was actually a dog. (Without wanting to offend you, Bizzi.) At least during the six years of the energy bear market, from 2014 to 2020, the AMLP fell lower and lower and lower. Month after month, this fund has been a big loser.
However, it was not a bad funds. It just wasn’t the right time to own AMLP, which owns shares of energy infrastructure companies. These are essentially intermediaries which collect tolls on energy transport. Yes, technically they make money during all energy seasons, but they are much better to own when prices are low. at least stable or, better yet, increasing.
(Producers like Exxon Mobil (XOM)on the other hand, are equal more sensitive to energy prices. We buy them only When oil itself is cheap and likely to rally.)
The decline in AMLP travel from 2014 to 2020 culminated with a complete collapse in early 2020. In April 2020, crude oil prices collapsed, to say the least. They hit negative territory, which means that the producers were paid people to get rid of the goo. Mad!
Ironically, this set the stage for a multi-year rally in crude.
In the oil field, low prices are the best cure for low prices. Producers quickly reduced production to save their results, their dividends and even their businesses. The supply immediately falls off a cliff.
The problem with the offer is that you have to years to come back online. Producers can quickly reduce shale extractions and bring offshore rigs back to port, but recovery takes much longer.
Long term (over the next period years), energy prices remain high due to industry underinvestment during fallow periods. The result is a sea of growing dividends from shares held by AMLP. Check out this rising tide of quarterly dividends. The trend is upward and improving, with a dividend up 31% over these three years:
As long as energy prices fluctuate sideways or improve, AMLP continues to collect tolls. Which means the dividends continue.
Some of the individual stocks held by AMLP pay even more. Superior outfit LP Energy Transfer (ET) gives 9.3%. But be careful! AND will send you a complicated K-1 tax form-unless you own the shares by owning AMLP.
My accountant almost broke up with me years ago when I handed him two K-1s of these type of toll bridges. I thought I was just buying a few stocks. For him, I had joined two partnerships. Messy.
Never again, I promised him. This is why we love AMLP. No K-1!
Plus, diversification. We have no plans to scour the Permian Basin for contracts or inspect pipelines. Give us a ticker that we can time and we’re good to go.
Most traditional investors (and fund managers, for that matter) stop at SPDR Select Energy Sector Fund (XLE). There are some problems with this approach. First, XLE owns the Exxons of the world, making it more dependent on rising energy prices.
We dividend investors don’t need the roller coaster ride. The pipelines are enough, without the K-1.
Second, XLE only pays 3.2%. Lame! We will never do it retire with dividends This way.
Before I let you go, let me tell you about something better than an 8.2% yield. This would represent a dividend of 10.2%.
This last twist is for my die-hard closed-end fund (CEF) fans who worry that I have become indulgent in recommending the AMLP ETF. Kayne Anderson (KYN) Energy Infrastructure has many of the same names as AMLP, but traditional investors don’t know that. Which means it’s cheaper and more profitable!
KYN is yielding 10.2% today and, get this, it’s trading almost $2 below its net asset value (NAV):
It’s basically a $10 stock that trades at $8, or eighty-one cents on the dollar to be precise. On sale!
Brett Owens is chief investment strategist for Contrarian perspectives. For more great income ideas, get your free copy of his latest special report: Your early retirement portfolio: huge dividends, every month, forever.
Disclosure: none