In this article, we will be taking a look at 10 tax-advantaged MLPs with high dividend yields.
Typical dividend stocks are already pretty useful to have on an investment portfolio for a number of reasons, such as their ability to outpace inflation and establish a passive income stream that may come in handy during your retirement. However, master limited partnership (MLP) dividend stocks may be a step ahead of even dividend stocks like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V). This is not necessarily because MLPs are particularly financially stronger or more reliable, but rather because of three different reasons.
First, these stocks are tax-advantaged since they are taxed differently as compared to corporations, and investors in MLPs generally benefit from tax deferral on returns of capital. This means that while an investor is holding units in an MLP, they only have to pay taxes on them at the time of their sale. The second reason these stocks can be attractive investments is that they are typically high-yielding companies that far outpace the average on the market. For instance, Bloomberg and the Federal Reserve have estimated that as of 2021, the current yield of MLPs stood at 14.97%, compared to 6.04% for high-yield bonds, 3.9% for real estate investment trusts, and 1.85% for equities. Lastly, and perhaps most importantly, is the fact that corporate cash flows in MLPs are returned in bulk to investors in the companies through distributions, with MLPs distributing about 80-90% of their return of capital and 10-20% of ordinary income to investors.
According to a report by Investment Management Consultants Association, Inc., the above reasons, among a number of others, have resulted in MLP investment becoming a mainstream investing strategy rather than sticking to its previous status of alternative investment strategy. We can witness the rising popularity of MLPs in recent years by the fact that about 130 MLPs were trading on major exchanges by 2014, and the market capital of these companies was about $490 billion at the time, with around $422 billion of that amount, or 82% of it, coming from energy and natural resource MLPs in the midstream field, a trend that has prevailed to date.
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Without further ado, let’s take a look at the 10 tax-advantaged MLPs with high dividend yields.
Our Methodology
Insider Monkey tracks the data of about 873 hedge funds, and we have also used this data to pick dividend stocks that are highly popular among hedge funds today. For each stock we have mentioned its yield and the number of hedge funds holding a stake in it, ranking them from the lowest to the highest yield. Finally, we have used analysts’ ratings to determine which stocks are favorably placed in analyst and investor circles, picking stocks with mostly positive ratings and strong fundamentals.
Tax-Advantaged MLPs with High Dividend Yields
10. MPLX LP (NYSE: MPLX)
MPLX is a master limited partnership formed by Marathon Petroleum Corporation (MPC). The company has a dividend yield of over 9%.
As of the end of the second quarter, 11 hedge funds tracked by Insider Monkey held stakes in the company, compared to 8 funds a quarter earlier.
9. Cheniere Energy Partners LP (NYSEAMERICAN: CQP)
This MLP was formed by Cheniere Energy (LNG). It has a dividend yield of over 6%. A total of 2 hedge funds tracked by Insider Monkey held stakes in the company as of the end of Q2.
8. Brookfield Renewable Partners L.P. (NYSE: BEP)
Brookfield Renewable Partners L.P. (NYSE: BEP) is a renewable electricity and utilities company that owns and operates a portfolio of renewable power generating facilities. The company mainly works in North America, Colombia, Brazil, Europe, India, and China and ranks 8th on our list of the tax-advantaged MLPs with high dividend yields.
This July, JPMorgan’s Mark Strouse raised his price target on shares of Brookfield Renewable Partners L.P. (NYSE: BEP) from $43 to $46, while reiterating a Neutral rating on the stock.
In the second quarter of 2021, Brookfield Renewable Partners L.P. (NYSE: BEP) had an EPS of -$0.13, missing estimates by $0.17. The company’s revenue was $1.02 billion, up 56.53% year over year and beating estimates by $90.58 million. Brookfield Renewable Partners L.P. (NYSE: BEP) has gained 28.45% in the past year.
By the end of the second quarter of 2021, 20 hedge funds out of the 873 tracked by Insider Monkey held stakes in Brookfield Renewable Partners L.P. (NYSE: BEP) worth roughly $232 million. This is compared to 24 hedge funds in the previous quarter with a total stake value of approximately $223 million.
Like Pepsico, Inc. (NASDAQ: PEP), AT&T Inc. (NYSE: T), Walmart Inc. (NYSE: WMT), and Visa Inc. (NYSE: V), Brookfield Renewable Partners L.P. (NYSE: BEP) is a good stock to invest in.
ClearBridge Investments, an investment management firm, mentioned Brookfield Renewable Partners L.P. (NYSE: BEP) in its first-quarter 2021 investor letter. Here’s what they said:
“U.S. renewables utility Brookfield Renewable was another detractor. Brookfield Renewable is a pure-play renewables operator and developer headquartered in Canada and domiciled in the U.S., focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield Renewable’s globally diversified, multi-technology renewables business makes it an attractive partner. Its development pipeline stands at 18,000 megawatts, providing confidence the company can meet its targeted double-digit cash flow growth through to 2025. Shares moderated amid expectations of rising bond yields, and a cool-off on the green trade.”
7. Dorchester Minerals LP (NASDAQ: DMLP)
Dorchester Minerals is a Dallas-based firm that offers a dividend yield of over 9.43%. A total of 4 hedge funds tracked by Insider Monkey held stakes in the company as of the end of the second quarter.
6. Crossamerica Partners LP (NYSE: CAPL)
CrossAmerica is a wholesale and retail distributor of motor fuels. The Pennsylvania-based company offers a dividend yield of over 10%. As of the end of the second quarter, 2 hedge funds tracked by Insider Monkey held stakes in the company.
5. Energy Transfer LP (NYSE: ET)
Number of Hedge Fund Holders: 29
Dividend Yield: 6.43%
Energy Transfer LP (NYSE: ET) is a provider of energy-related services through its natural gas transportation pipelines spanning about 9,400 miles, and its three natural gas storage facilities in Texas. The company also owns about 12,340 miles of interstate natural gas pipelines. It ranks 5th on our list of tax-advantaged MLPs with high dividend yields.
This July, Keith Stanley, an analyst at Wolfe Research, upgraded shares of Energy Transfer LP (NYSE: ET) from Peer Perform to Outperform. The analyst also raised the stock’s price target to $13.
In the second quarter of 2021, Energy Transfer LP (NYSE: ET) had an EPS of $0.20, missing estimates by $0.07. The company’s revenue was $15.10 billion, up 105.79% year over year and beating estimates by $178.09 million. Energy Transfer LP (NYSE: ET) has gained 24.08% in the past 6 months and 55.41% year to date.
By the end of the second quarter of 2021, 29 hedge funds out of the 873 tracked by Insider Monkey held stakes in Energy Transfer LP (NYSE: ET) worth roughly $835 million. This is compared to 25 hedge funds in the previous quarter with a total stake value of approximately $647 million.
Miller/Howard Investments, an investment management firm, mentioned Energy Transfer LP (NYSE: ET) in its first-quarter 2021 investor letter. Here’s what they said:
“Another upweight was Energy Transfer (ET), which was selling at a discount on EV/ EBITDA compared with the portfolio and had an attractive +20% FCF yield. Further, ET’s ample FCF should exceed the current distribution even if the Dakota Access Pipeline were to be shut down.”
4. Viper Energy Partners LP (NASDAQ: VNOM)
Number of Hedge Fund Holders: 12
Dividend Yield: 7.3%
Viper Energy Partners LP (NASDAQ: VNOM) is an energy company that owns, acquires, and exploits oil and natural gas properties. The company operates mainly in North America and ranks 4th on our list of tax-advantaged MLPs with high dividend yields. As of December 2020, the company had mineral interests in 24,350 net royalty acres in the Permian Basin and Eagle Ford Shale; and estimated proved oil and natural gas reserves of 99,392 thousand barrels of crude oil equivalent.
Citigroup’s Brian Downey raised his price target on shares of Viper Energy Partners LP (NASDAQ: VNOM) from $20 to $22 this July and also reiterated a Buy rating on the stock.
In the second quarter of 2021, Viper Energy Partners LP (NASDAQ: VNOM) had an EPS of $0.09, beating the previous quarter’s EPS of -$0.08. The company’s revenue was $114.15 million, up 249.41% year over year and beating estimates by $25.32 million. Viper Energy Partners LP (NASDAQ: VNOM) has gained 15.24% in the past 6 months and 48.36% year to date.
By the end of the second quarter of 2021, 12 hedge funds out of the 873 tracked by Insider Monkey held stakes in Viper Energy Partners LP (NASDAQ: VNOM) worth roughly $94 million. This is compared to 10 hedge funds in the previous quarter with a total stake value of approximately $59 million.
3. Enterprise Products Partners L.P. (NYSE: EPD)
Number of Hedge Fund Holders: 28
Dividend Yield: 8.12%
Enterprise Products Partners L.P. (NYSE: EPD) is another energy company on our list of tax-advantaged MLPs with high dividend yields. The company offers provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products, and ranks 3rd on our list.
This April, TD Securities analyst Linda Ezergailis began covering shares of Enterprise Products Partners L.P. (NYSE: EPD) with a Buy rating alongside a $28 price target.
In the second quarter of 2021, Enterprise Products Partners L.P. (NYSE: EPD) had an EPS of $0.51, beating estimates by $0.01. The company’s revenue was $9.45 billion, up 64.32% year over year and beating estimates by $1.54 billion. Enterprise Products Partners L.P. (NYSE: EPD) has gained 4.03% in the past 6 months and 14.98% year to date.
By the end of the second quarter of 2021, 28 hedge funds out of the 873 tracked by Insider Monkey held stakes in Enterprise Products Partners L.P. (NYSE: EPD) worth roughly $246 million. This is compared to 26 hedge funds in the previous quarter with a total stake value of approximately $299 million.
ClearBridge Investments, an investment management firm, mentioned Enterprise Products Partners L.P. (NYSE: EPD) in its first-quarter 2021 investor letter. Here’s what they said:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. We added to low-cost, high-quality energy names (including) Enterprise Products Partners LP. We are positive on this company’s strong balance sheets, competitive positions and exposure to an economic recovery.”
2. Magellan Midstream Partners, L.P. (NYSE: MMP)
Number of Hedge Fund Holders: 13
Dividend Yield: 8.5%
Magellan Midstream Partners, L.P. (NYSE: MMP) transports, stores, and distributes refined petroleum products and crude oil in the US. This energy company ranks 2nd on our list of tax-advantaged MLPs with high dividend yields and operates through its Refined Products and Crude Oil segments.
Gabriel Moreen, an analyst at Mizuho, just this July raised the price target on shares of Magellan Midstream Partners, L.P. (NYSE: MMP) from $47 to $50. The analyst also reiterated a Neutral rating on the shares.
In the second quarter of 2021, Magellan Midstream Partners, L.P. (NYSE: MMP) had an EPS of $1.38, beating estimates by $0.31. The company’s revenue was $653.64 million, up 41.79% year over year and beating estimates by $73.71 million. Magellan Midstream Partners, L.P. (NYSE: MMP) has gained 16.01% in the past 6 months and 16.85% year to date.
By the end of the second quarter of 2021, 13 hedge funds out of the 873 tracked by Insider Monkey held stakes in Magellan Midstream Partners, L.P. (NYSE: MMP) worth roughly $89 million. This is compared to 14 hedge funds in the previous quarter with a total stake value of approximately $85 million.
1. Antero Midstream Corporation (NYSE: AM)
Number of Hedge Fund Holders: 16
Dividend Yield: 9.55%
Antero Midstream Corporation (NYSE: AM) owns and operates midstream energy infrastructure and ranks 1st on our list of tax-advantaged MLPs with high dividend yields. The company operates through its Gathering and Processing, and Water Handling segments.
Mark Carlucci, an analyst at Morgan Stanley, upgraded shares of Antero Midstream Corporation (NYSE: AM) from Underweight to Equal Weight this March. The analyst also raised his price target on Antero Midstream Corporation (NYSE: AM) shares from $6 to $11.
In the second quarter of 2021, Antero Midstream Corporation (NYSE: AM) had an EPS of $0.23, beating estimates by $0.01. The company’s revenue was $232.79 million, up 5.94% year over year and beating estimates by $11.90 million. Antero Midstream Corporation (NYSE: AM) has gained 6.8% in the past 6 months and 23.46% year to date.
By the end of the second quarter of 2021, 16 hedge funds out of the 873 tracked by Insider Monkey held stakes in Antero Midstream Corporation (NYSE: AM) worth roughly $106 million. This is compared to 17 hedge funds in the previous quarter with a total stake value of approximately $123 million.
Bonhoeffer Capital Management, a value-oriented investment management firm, mentioned Antero Midstream Corporation (NYSE: AM) in its fourth-quarter 2020 investor letter. Here’s what they said:
“Public LBOs (32% of Portfolio; Quarterly Average Performance +25%)
This includes our broadcast TV franchises, leasing and roll-on/roll-off (RORO) shipping, and our natural gas pipeline firm. One trend in these levered firms is the increasing spread between bond yields and the firms’ free cash flow yield.
An example is Antero Midstream, whose FCF yield was 15% as of December 31, 2020, with a debt yield of 6% with the bond/equity FCF spread of 9%. This is a large spread given that Antero Midstream has completed its backbone infrastructure and gathering investment and capital expenditures should be small going forward. With natural gas prices rebounding, Antero Midstream cash flows become more secured as Antero Resources has more cash flow cushion in making payments to Antero Midstream. The recovery in natural gas prices is expected to continue as the economy opens up and low oil prices have shut down Permian oil wells that were generating almost-free associated natural gas. Antero Midstream’s FCF yield of 15% is also higher than similarly secured Antero subordinated debt with a yield of 7.8%.”
See also 10 Most Profitable Cash-Only Businesses To Avoid Taxes and Billionaire James Dinan’s Top 10 Stock Picks.
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Disclosure: None. 10 Tax-Advantaged MLPs with High Dividend Yields is originally published on Insider Monkey.
Correction: The previous version of this article incorrectly called Blackstone, Ares Management, Apollo Global Management and Brookfield Infrastructure MLPs. The article was amended at 5:03 PM ET on September 15
