Forget about fixed income securities: add this tax-efficient investment vehicle instead

WWhile the diversification benefits of investing in fixed income securities are substantial over time, it is difficult to justify investing in bonds in today’s environment with yields expected to rise and inflation gnawing at everything. nominal yield. Contrary to popular belief, the opportunity still exists for investors to create a reliable income stream from the stock markets. There are several dividend strategies that the best investors incorporate into their investment portfolio, including blue-chip dividend-paying stocks, real estate investment trusts (REITs), and master limited partnerships (MLP).

Investing in companies that have a habit of raising dividends can be a very reliable indicator of future earnings growth. Corporate directors know the details and financial situation of their business much better than anyone, including the prospects for future earnings growth. Management will only increase dividends if it has every reason to believe that future earnings growth will be able to support higher dividend payouts. A steady upward trend in dividends can alert investors to healthy, growing companies. We are going to focus on 3 MLPs that have consistently increased their dividends.

Due to their favorable tax treatment, this type of high-yield, high-quality investment vehicle has provided investors with favorable returns for many years. There are countless relatively unknown MLPs that have consistently increased their dividends over a long period of time, providing investors with high returns. MLPs do not pay income taxes and trade on major exchanges.

MLPs are different from other traditional investment structures – they are partnerships. A general partner is responsible for the management of the MLP, and individual investors serve as limited partners. MLPs have to pay their profits directly to shareholders and pay much larger dividends because they don’t pay tax. The income generated by the MLP is distributed among all the partners in proportion to their participation.

Compared to dividend-paying stocks, MLPs are relatively unknown and largely ignored by the financial media. MLPs are able to bypass the IRS and pass their profits straight to shareholders, making them the ideal investment for individual investors.

Investing in MLPs also comes with a special tax benefit for MLP dividends, called distributions. The IRS considers 80-90% of MLP distributions to be a capital repayment, which means investors can defer tax on their earnings for many years until they sell their shares. MLPs have attracted a diverse set of businesses across many industries due to their favorable tax treatment.

Below, we will analyze three MLPs within the Zacks Oil & Gas – Refining and Marketing – Master Limited Partnerships industry group. This industry group is ranked in the top 7% of all industries ranked by Zacks. Energy is also at the top of the load in the early trading days of this year and was the top S&P sector last year.

Sunoco LP (SUN)

Sunoco is a master limited partnership that distributes fuel to approximately 10,000 convenience stores, independent dealers, commercial customers and distributors in more than 30 US states. Founded in 2012 and based in Dallas, Texas, Sunoco also leases real estate and operates terminals in the Hawaiian Islands.

At Zacks # 2 Buy stock, SUN has not reduced its dividend since its founding; the company’s current dividend yield is 8.03%. Trading at a relatively undervalued forward P / E of 8.35, SUN has beaten earnings estimates in four of the past six quarters. SUN has averaged a 47.31% positive earnings surprise over the past four quarters, supporting its nearly 60% rise in the past year.

Sunoco LP price, consensus and EPS surprise

SUN’s distribution networks reflect strong business and sustainable cash flow that will continue to drive the share price. Sunoco is one of the largest fuel distributors in the United States. SUN expects fuel volumes for 2021 to be around 7.75 billion gallons, up from 7.09 billion in 2020.

Analysts covering SUN have increased their annual profit estimates by 1.1% in the past 60 days. Zacks’ consensus estimate for 2021 EPS now stands at $ 6.41, an astonishing 743.42% growth rate from last year. SUN is expected to release its results on February 16e.

LP Global Partners (GLP)

Global Partners is engaged in the purchase, sale, storage and logistics of transporting gasoline, distillates, petroleum, renewable fuels and propane to a wide range of customers in the New England area and from New York. Founded in 2005 and headquartered in Waltham, MA, Global Partners has a portfolio of over 1,548 owned, leased or supplied service stations.

GLP has beaten earnings estimates in 15 of the past 19 quarters. Zacks # 2 Stock (Buy), this MLP is trading at a reasonable forward P / E of 13.79 and has a current dividend yield of 9.53%. GLP has posted an average profit of + 13.4% over the past four quarters, more recently beating + 38.71% when the company generated EPS of $ 0.86 in September. GLP has climbed over 60% in the past year.

Global Partners LP Price, Consensus and EPS Surprise

Global Partners LP Price, Consensus and EPS Surprise

In 2022, GLP’s revenue is expected to grow 25.53% from 2021. Over the past 60 days, earnings estimates for next year have increased by 28.68%. Zacks’ Consensus Estimate for 2022 BPA stands at $ 1.75, which would represent 56.25% growth from last year. GLP is expected to report quarterly results on March 4e.

Phillips 66 Partners LP (PSXP)

Phillips 66 Partners is an energy company that owns, operates, develops and acquires intermediate assets. The company provides transportation, processing, storage and fractionation of crude oil, petroleum products and natural gas liquids. PSXP was founded in 2013 and is headquartered in Houston, Texas.

PSXP has never reduced its dividend since its creation; the current yield of MLP is 9.22%. The company is relatively undervalued, trading at a futures P / E of 9.24. The PSXP recently announced EPS of $ 1.00 in October of last year, a positive surprise of 1% from consensus. The stock has risen nearly 67% in the past year.

Phillips 66 Partners LP Price, Consensus and BPA Surprise

Phillips 66 Partners LP Price, Consensus and BPA Surprise

With a Zacks # 2 ranking, Phillips 66 Partners is the least exposed to fluctuations in commodity prices as it generates stable fee-based income under long-term contracts from its diverse base of intermediate energy assets. across the United States. The partnership’s cash flow is very stable and predictable, which should further support its share price.

Zacks’ Consensus Estimate for 2022 BPA stands at $ 4.11, which would translate into 51.1% growth from last year. PSXP set to release next earnings report on February 4e.

Clearly MLP investing is something that every individual investor should consider. The constant stream of income along with the potential for price appreciation warrants further consideration of adding these MLPs to your portfolio.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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