While the diversification benefits of investing in fixed income securities are significant over time, it is difficult to justify investing in bonds in the current environment with yields expected to rise and inflation eating away at everything. nominal yield. Contrary to popular belief, investors still have the opportunity to create a reliable stream of income from stock markets. There are several dividend strategies that the best investors incorporate into their investment mix, including blue-chip, dividend-paying stocks, real estate investment trusts (REITs), and master limited partnerships (MLPs).
Investing in companies that have a history of increasing dividends can be a very reliable indicator of future earnings growth. Corporate directors know the details and financial condition of their business, including future earnings growth prospects, far better than anyone. 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 consistent 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-yielding, high-quality investment vehicle has been providing 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 stock exchanges.
MLPs are different from other traditional investment structures – they are partnerships. A general partner is responsible for managing the MLP, and individual investors act as limited partners. MLPs must pay their profits directly to shareholders and pay much larger dividends because they pay no taxes. 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 income directly 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 return of capital, which means that investors can defer taxes on their gains 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 also leads the charge in the early trading days of this year and was the No. 1 sector on the S&P last year.
Sunoco LP (SUN – Free report)
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, TX, Sunoco also leases real estate and operates terminals on the Hawaiian Islands.
At Zacks #2 Buy shares, SUN hasn’t cut its dividend since inception; the company’s current dividend yield is 8.03%. Trading at a relatively undervalued PER of 8.35, SUN has exceeded earnings estimates in four of the past six quarters. SUN averages a positive earnings surprise of 47.31% over the past four quarters, supporting its nearly 60% rise over the past year.