Most Americans — over 97% — are oblivious to these 893(C) accounts. They’re also oblivious to investments offering 2x, 5x, and even 10x the income payments offered by the market average.
Bigger is frequently better when income investing in energy, but not always. Many investors learned this lesson painfully.
Energy master limited partnerships (MLPs) were the darlings of the investing world only a couple years go. Distribution yields of 8%, 10%, and even 15% were readily available.
But as a popular Wall Street axiom tells us: More money is lost reaching for yield than at the point of a gun.
Many MLPs offer supporting evidence; none more so than Kinder Morgan (NYSE: KMI), one of the largest energy infrastructure companies.
In my 25 years advising over 10,000 investors, I’ve rarely issued this code-red alert. There’s a new investment I’m recommending outstripping some mutual fund & ETFs by 1,000%!
Richard Kinder, executive chairman of Kinder Morgan, is the father of the MLP concept. The business retains no earnings, so it pays no federal income tax. All the earnings are passed along to as high-yield distribution.
Kinder Morgan was one of the founding MLPs. High yield and continual distribution growth were immediate attractions. When oil prices were north of $100/barrel and natural gas prices north of $4/mmBTUs, Kinder Morgan continually raised its distribution.
Unlike most companies – which raised their payouts once a year – Kinder Morgan did this every single quarter.
What could possibly go wrong?
Falling energy prices.
When earnings are predicated on a commodity’s price, maintaining earnings is a tough proposition when the commodity’s price falls. Maintaining the high-yield distribution is tougher still.
When energy prices were sucked into a downward helix, Kinder Morgan slashed the distribution 75%. The good will accumulated during the salad years disappeared in a flash.
Before Kinder Morgan slash its distribution, its units offered a 7.4% distribution yield. After the cut, the distribution yield was 2% on the cost basis. Worse, the unit price — the cost basis — was cut in half.
Other large energy companies have fared better. The large integrated energy giants have maintained their dividends. Retained earnings offer the buffer unavailable to Kinder Morgan.
Royal Dutch Shell (NYSE: RDS.a), ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), BP PLC (NYSE: BP) have maintained their respective dividends. They’ve aggressively driven down costs to lower their break-even point on oil.
Today, energy companies — big energy companies in particular — post year-over-year earnings growth. Few investors notice. Share-price gains have been scant to nonexistent in 2017.
Energy companies generate earnings growth today, and the earnings growth is on sale. Energy is the best value on the market today.
Rarely have yields been so big. ExxonMobil and Chevron dividends both yield 4%. The Shell dividend yields 6.8%. BP’s dividends yields 6.9%.
You could but these stocks individually.
Or using a special investment, you can buy all four stocks and collect an even bigger yield — a 7.4% yield.
But you need to know how to buy.
The discount is key. You can’t pay retail.
The right discount for these energy giants is 9% or above. Yes, you can buy ExxonMobil, Chevron, Shell, and BP at a 9% discount to market value.
Better yet, you can learn how to pick up income yields 3x, 5X, and even 10X the market average.
No excuses, because it’s free. You have nothing to lose, except the ability to invest for high-yield income like you never have.