Showing posts with label dividend. Show all posts
Showing posts with label dividend. Show all posts

Tuesday, June 13, 2023

How Should Investors Prepare For A Market Correction Or Bear Market?

Chris and Tom, of Palisades Gold Radio, cover a range of topics through the lens of technical analysis. They delve into the following questions:


  • Where is capital flowing to in the current market environment? What are the stages of the market and where are we right now? Why is the 150-day moving average important for gauging what stage the markets are in?

  • Comparing the S&P 500 to precious metals or miners, when will money flow toward the latter? How are the stock market and miners correlated? What do the topping candles on the monthly Gold chart indicate?

  • Can the US dollar and Gold go up together or will they work against each other? Is Gold the ultimate safe play for global investors?

  • What is the outlook for oil and how does its current position compare to 2007? What is the importance of established support levels and price action?

  • AI stocks seem to be holding the market up right now. What happens when these begin to falter?

  • How important is it for investors to be prepared for when the markets begin to roll over? What are the dangers of ignoring this eventuality? And what does a drawdown actually mean for an investor? What are the dangers of the Buy-and-Hold, diversification, and dividend-paying strategies?

  • How do you pull money out of the stock market with your strategies? Is frequent trading better than having fewer trades? What is an Asset Revestor? What indicators, trend analysis, risk, and position management tools are used to protect capital and grow your accounts?

Thursday, December 16, 2021

Earn Monthly Dividends By Solar Powering Schools, Businesses and Communities

Like the big oil companies we are diversified across all of the energy sectors. Here is our new favorite, shore up your retirement with this great program.

Join the Sun Exchange today and start generating and selling clean energy online through a global solar cell leasing platform. All from anywhere on the planet.

Sourcing our Solar Projects
Sun Exchange identifies schools, businesses and organisations that want to go solar. Our solar engineers work with local solar construction partners to carefully evaluate proposed solar projects and ensure they meet our core criteria:

* Economic and technical viability
* Social and environmental responsibility

Tip: Sign Up and get notified about new solar project crowd sales coming soon. 

View Upcoming Solar Projects Here

Buying Solar Cells
Once solar projects have been accepted as viable and responsible, we run a crowd sale for the solar cells that will power the project. Any individual or organisation, anywhere in the world, can sign up to be a Sun Exchange member and buy solar cells, even starting with a single solar cell.

Your solar cells will:

* Generate clean energy
* Make a positive social and environmental impact
* Earn income as you lease them to schools, businesses and other organisations
* Reduce your carbon footprint for years to come

  Tip: Buy solar cells in the local currency of the project using credit card, bank transfer, Sun Exchange  
   wallet or Bitcoin (BTC).


Installing Solar Cells
Once a solar cell crowd sale sells out (they go quickly!), installation of the solar project begins. The appointed local construction partners install your solar cells, which typically takes four to six weeks, but can be longer for larger projects.

Tip: Track the status of your solar cells through your Sun Exchange dashboard.

Effortless Solar Income
Generate and sell clean energy. Schools, businesses and organisations pay you to use the clean electricity your solar cells produce. Your lease starts when your solar cells start generating electricity.

You’ll receive your monthly solar income, net of insurance and servicing fees, into your Sun Exchange wallet in your choice of the local currency of the project or Bitcoin (BTC).

Your Sun Exchange dashboard keeps you up to date on:

* Solar project status updates
* Our solar cell earnings (BTC and ZAR)
* The clean energy your solar cells generate (kWh)
* The amount of carbon your solar cells offset (kg CO2)
* Your Sun Exchange wallet balance, payments and withdrawals

  Tip: The monthly income you accumulate in your Sun Exchange wallet can be used to buy more solar cells
   in other solar projects.

Start earning monetized sunshine and offset your carbon footprint, while powering schools, businesses and communities through Sun Exchange.








Friday, January 27, 2017

Forget Dow 20,000… This Indicator Tells the Real Story

By Justin Spittler

It finally happened. For the last six weeks, the Dow Jones Industrial Average has been bumping against a ceiling. Yesterday, it broke through. The Dow topped 20,000 for the first time ever. Most investors are excited about this. After all, 20,000 is a big, round number. It feels like a psychological win for the bulls.

But it’s not an invitation to dive into stocks…not yet, at least. We need to see if the Dow can hold this level.
If it closes the week above 20,000, stocks could keep rallying. If it doesn’t, nothing has really changed. It could even be a warning sign. Until then, sit tight. Don’t chase stocks higher…stick to your stop losses…and hold on to your gold.

Don’t lose sight of the big picture, either.…

Remember, U.S. stocks are still very risky:
➢ They’re expensive. The S&P 500 is trading at a cyclically adjusted price-to-earnings ratio (CAPE) of 28.4. That means large U.S. stocks are 70% more expensive than their historical average.
➢ We’re still in a profits recession. Profits for companies in the S&P 500 stopped growing in 2014.
➢ And Donald Trump is president of the United States. Trump could do wonders for the economy and stock market. But he could also unleash a major financial crisis. It's still too early to tell.

As you can see, "Dow 2,000" isn't necessarily a reason to celebrate. In fact, as we told you two weeks ago, there's something much more important you should be watching right now.

The bond market is flashing danger.…
The bond market is where companies borrow money. It’s the cornerstone of the global financial system.
It’s also bigger and more liquid than the stock market. This is why the bond market often signals danger long before it shows up in stocks.

The bond market started to unravel last summer.…
Just look at U.S. Treasury bonds. In July, the 10-year U.S. Treasury hit a record low of 1.37%. Since then, it’s nearly doubled to 2.55%. This is a serious red flag. You see, a bond’s yield rises when its price falls. In this case, yields skyrocketed because bond prices tanked. The same thing has happened in long term Treasury, municipal, and corporate bonds.

Bill Gross thinks bonds are entering a long-term bear market.…
Gross is one of the world’s top bond experts. He founded PIMCO, one of the world’s largest asset managers. He now runs a giant bond fund at Janus Capital. Two weeks ago, Gross said the bull market in bonds would come to an end when the 10-year yield tops 2.6%. Keep in mind, bonds have technically been in a bull market since the 1980s.

According to Gross, this number is far more important than Dow 20,000. And we’re only 50 basis points (0.5%) from hitting it. In other words, the nearly four-decade bull market in bonds could end any day now.
When it does, Gross says bonds will enter a secular bear market... meaning bonds could fall for years, even decades. This is why Casey Research founder Doug Casey has urged you to “sell all your bonds.”

If you haven’t already taken Doug’s advice, we encourage you to do so now.…
You should also take a good look at your other holdings. After all, problems in the bond market could soon spill over into the stock market. If this happens, utility stocks could be in big trouble. Utility companies provide electricity, gas, and water to our homes and businesses. They sell things we can’t live without. Because of this, most utility companies generate steady revenues. This helps them pay dependable dividends.

Many investors own utility stocks just for their dividends.…
That’s why a lot of people call them “bond proxies.” Utility stocks don’t just pay generous income like bonds, either. They also trade with bonds. You can see this in the chart below. It compares the performance of the Utilities Select Sector SPDR ETF (XLU) with the iShares 20+ Year Treasury Bond ETF (TLT). XLU holds 28 utility stocks. TLT holds long-term Treasury bonds. XLU has traded with TLT for the better part of the last year. Both funds crashed after the election, too. But XLU has since rebounded.




You might find this odd. After all, the two funds basically moved in lockstep until a couple months ago.
But there’s a perfectly good explanation for this.…

Utility stocks pay more than Treasury bonds.…
Right now, XLU yields 3.4%. TLT yields 2.6%. That might not sound like big deal. But those extra 80 basis points (0.8%) provide a margin of safety. You see, the annual inflation rate is currently running at about 2.1%. That means the U.S. dollar is losing 2.1% of its value every year.

That’s bad news for everyday Americans. It’s also bad for bondholders. It means investors who own TLT are earning a “real” return (its dividend yield minus inflation) of 0.5%. Meanwhile, you’d be earning a real return of 1.3% if you owned XLU. Of course, utility stocks should pay more than government bonds. They’re riskier, after all. Unlike the government, utility companies can’t print money whenever they want. If they run into financial problems, they could go out of business.

Today, investors don’t seem to mind taking on extra risk for more income. But that could soon change…

Inflation could skyrocket under Donald Trump.…
If you’ve been reading the Dispatch, you know why. For one, Trump wants to spend $1 trillion on infrastructure projects. While this could help the economy in the short run, the U.S. government will have to borrow money to fix the country’s decrepit roads, bridges, and power lines. This would likely produce a lot more inflation. If that happens, real returns could shrink even more. And that could trigger a selloff in utility stocks and other "bond proxies," like telecom and real estate stocks. In short, if you own these types of stocks just for their dividends, you might want to consider selling them now.

We recommend sticking to dividend-paying stocks that meet the following criteria.…
The company should be growing. If it isn’t, you probably own the stock just for its dividend. That’s a bad strategy right now. It should have a low payout ratio. A payout ratio can tell us if a company’s dividend is sustainable or not. A payout ratio above 100% means a company is paying out more in dividends than it earns in income. Avoid these companies whenever possible.

It shouldn’t depend on cheap credit. After the 2008 financial crisis, a lot of companies borrowed money at rock-bottom rates to pay out dividends. If rates keep rising, these companies could have a tough time paying those dividends. If you own stocks that check these boxes, your income stream should be in good shape for now.


Chart of the Day

“Trump Years” stocks are on a tear. We all know U.S. stocks took off after the election. But some stocks did better than others. Bank stocks spiked on hopes that Trump would deregulate the financial sector. Oil and gas stocks rallied because Trump is pro-energy. Industrial stocks have also surged since Election Day.

Industrial companies manufacture and distribute goods. They include construction companies and equipment makers. E.B. Tucker, editor of The Casey Report, thinks these companies will stay very busy while Trump rebuilds America’s hollowed out economy.

He’s so sure of it that he recommended four “Trump Years” stocks last month. One of those stocks is up 11% in just six weeks. Yesterday, it spiked 8% after the company crushed its fourth quarter earnings report.
The company announced higher sales, fatter profits, and lower taxes. It raised its guidance for the year. In other words, it expects to make a lot more money this year…now that Trump’s in charge.

You can learn about this company and E.B.’s other “Trump Years” stocks by signing up for The Casey Report. Click here to begin your free trial.




Stock & ETF Trading Signals

Thursday, February 4, 2016

Here’s Why Crude Oil Stocks Haven’t Bottomed Yet

By Justin Spittler

Oil companies are hemorrhaging money. The oil market is in its worst downturn in decades. The price of oil has plummeted 72% since June 2014. Oil is trading below $30 a barrel for the first time since 2003.
If you’ve been reading the Dispatch, you know the world has too much oil. In recent years, technologies like “fracking” have unlocked billions of barrels of oil that were once impossible to extract from shale regions.
Global oil production has climbed 20% since 2000. Last year, global output hit an all time high. Yesterday, The Wall Street Journal reported the global oil market is oversupplied by 1.5 million barrels a day.
Because oil is leaving the ground faster than it’s being consumed, oil storage tanks are overflowing. 

Companies are now storing oil on tankers floating at sea, according to Bloomberg Business.

Low oil prices have slammed oil stocks..…
Since June 2014, Exxon Mobil (XOM), the world’s largest oil company, has dropped 27%. Chevron (CVX), the second biggest oil company, has plunged 38%. European oil giants Royal Dutch Shell (RDS-A), BP (BP), and Total S.A. (TOT) have plummeted 46%, on average, over the last 18 months. Together, these giant companies are known as the oil “supermajors.”

BP had a $3.3 billion net loss last quarter..…
And it lost $6.5 billion for the year, its worst annual loss in at least 30 years. Exxon sales fell 28% last quarter. Its profits plunged 58% to $2.78 billion, the company’s lowest quarterly profit since 2002. Chevron also booked its worst quarterly profit since 2002. Shell expects to report a 42% decline in profits for their fourth quarter.

Oil and gas companies slashed spending by 22% last year..…
Analysts expect another 12% cut this year to $522 billion, according to Reuters. The industry hasn’t spent that little since 2009…when the U.S. economy was going through its worst downturn in almost a century. More spending cuts are coming this year. Chevron plans to cut spending by 24% this year. The company laid off 10% of its employees in October. Exxon plans to cut spending by 25% in 2016. And BP plans to eliminate 9% of its jobs over the next two years.

The supermajors have not cut dividends yet..…
Regular readers know these oil giants pay some of the steadiest income streams on the planet. Shell hasn’t cut its dividend since World War II. Exxon and Chevron have both increased their annual dividends for at least the past 25 years, which earns them a spot in the “Dividend Aristocrats” club. Investors view these dividends as sacred. Some have even passed along their original shares to children and grandchildren, like grandma’s ring or the family farm. These giant oil companies have been paying regular dividends for decades, even through the 2001 dot com crash and 2008 financial crisis. Cutting their dividends would be a last resort.

The world’s oil giants may have to do the “unthinkable” if oil prices stay low..…
Financial Times reported in December,
…(J)ust weeks ago, BP and France’s Total each pledged to balance their books at $60 a barrel oil, saying they aimed to cover their dividends from “organic” cash flow by 2017.
…(E)ven at $60, the three biggest European majors will need to take further cost-cutting action to cover investor payouts…Total’s $6.8bn dividend would exceed its projected organic free cash flow by $800m two years from now. For BP, the cash shortfall is put at $500m…
These oil companies cut costs to be profitable at $60 oil. But with oil now at $30, they need to make even more drastic cuts.
BP is running out of places to cut spending according to Bloomberg Business.
While Chief Executive Officer Bob Dudley has trimmed billions of dollars of spending, cut thousands of jobs and deferred projects in response to the plunge in crude prices, BP’s cash flow still doesn’t cover investments and dividends…
BP has already cut “a lot” from capital expenditure, Chief Financial Officer Brian Gilvary said Tuesday at a press briefing in London. When asked how much room it has to reduce spending further before cutting into the bone, Gilvary said “we are around that zone.”

Standard & Poor’s (S&P) downgraded Chevron and Shell this week..…
Ratings agencies downgrade a company’s credit rating when they think the company’s financial health is getting worse. Like a person having a bad credit score, a downgrade can make it harder and more expensive for a company to borrow money. S&P cut Shell’s credit rating to the lowest level since 1990. S&P also put the debt of BP, Total, and Exxon on watch for downgrades.

S&P doesn’t think oil companies have cut spending enough. Bloomberg Business reported:
S&P’s moves come after the ratings company lowered its 2016 oil-price assumption Jan. 12, reducing Brent crude by $15 a barrel to $40. The 52 percent average price decline in 2015 won’t be matched by most companies’ cost and spending reductions, S&P said.
As regular readers know, the oil market is cyclical. It goes through big booms and busts. Eventually we’ll get an amazing opportunity to buy world-class oil companies at absurdly cheap prices. But with dividend cuts looming, the bottom likely isn’t in yet. We recommend avoiding oil stocks for now.

Louis James, editor of International Speculator, sees an opportunity to profit from cheap oil..…
Louis is our resource guru. He specializes in finding small miners with huge upside. Louis is an expert in the cyclical nature of commodities. He knows how to make money during booms and busts. And now, Louis sees opportunity in airlines. Jet fuel, which is made from oil, is a major operating expense for airlines. So, airline stocks often move up when oil drops. Last year, jet fuel prices fell by more than one-third. Major airlines are now raking in cash. The U.S. airline industry made $22 billion in profits during the first nine months of 2015, according to the Department of Transportation. That’s more than any entire year in its history.

In December, Louis recommended his favorite airline stock in International Speculator.....
The company has doubled its profits during the third quarter of 2015. On Monday, Louis said the company doubled its profits again last quarter.
The company just announced more-than-solid financial results for last quarter, doubling its quarterly profit. The company says it’s on track to hit the high end of its operational goals for the fiscal year. All great, but even better is that the stock rebounded from its recent slide on the news. That’s “proof of concept” that this stock can buck the market by delivering to the bottom line when other businesses are hurting, which was one of the main reasons we bought this stock.
The stock surged 4% with the quarterly news…and Louis thinks the stock will continue higher. You can learn more about Louis’ favorite airline by signing up for a risk-free trial to International Speculator.

Chart of the Day

BP just had its worst year in at least three decades. Today’s chart shows BP’s profits since 1985. Since then, the oil giant has made money in 27 years and lost money in 3. Last year, BP lost a record amount of money. It lost more than it did in 2010 when one of the company's oil rigs exploded in the Gulf of Mexico. BP has cut billions of dollars in spending. It’s laid off thousands of workers. Yet, it’s still bleeding cash. The company may soon have to do the unthinkable and cut its dividend.




The article Here’s Why Oil Stocks Haven’t Bottomed Yet was originally published at caseyresearch.com.


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Stock & ETF Trading Signals

Tuesday, December 8, 2015

Janet Yellen: The Best Pick Pocket in the USA

By Tony Sagami

“Some of the experiences [in Europe] suggest maybe we can use negative interest rates.”
—William Dudley, President of the New York Federal Reserve Bank

“We see now in the past few years that it [negative interest rates] has been made to work in some European countries. So I would think that in a future episode that the Fed would consider it.”
Ben Bernanke

“Indeed, I would be open to the possibility of reducing the fed funds target funds range even further, as a way of producing better labor market outcomes.”
—Narayana Kocherlakota, President of the Minneapolis Federal Reserve Bank

If you are planning to travel to any major European city, you better watch your wallet because there are thousands of very skilled pickpockets looking to separate you from your valuables. Those pickpockets, however, will only get away with however much money you have in your wallet. Sure, a pickpocket can throw a major monkey wrench into your vacation, but the amount these European thieves take from you is peanuts compared to what Fed head Janet Yellen wants to steal from your bank account.

While Wall Street experts and CNBC talking heads regularly debate the "will they or wont they" interest rate liftoff, a more important question is whether or not the Federal Reserve will follow the European model of negative interest rates. Negative interest rates are nothing unusual in Europe as several central banks lowered key interest rates below 0%.


Yup, that means investors essentially pay a fee to park their money.

That parking fee just got higher last week when the European Central Bank cut its already negative deposit rate from minus 0.2% to minus 0.3%. The ECB also expanded is current quantitative easing program. The European Central Bank, the Swiss National Bank, and the Danish National Bank all have interest rates below zero. In fact, the Danes have held their overnight rates at negative 0.75% since 2012.

The Swiss, however, are the undisputed leaders of the negative interest rate experiment. The SNB first moved to negative rates in December 2014 and then dropped rates to negative 0.75% in January of this year. The Swiss National Bank, by the way, meets in a couple of days, on December 10, and is widely expected to cut rates again.

The question, of course, is how negative can interest rates go? Before the end of December, I expect deposit rates in Switzerland to be between -100bps and -125bps. Remember, we’re not talking about some backwater, third world countries here. Switzerland and Germany are two of the wealthiest countries in the world, as well as the home of major financial and political centers.

And I’m not just talking about short term paper either. Finland, Germany, France, Switzerland, and Japan are all selling five year debt with negative yields. In fact, Switzerland became the first country in history to sell benchmark 10 year debt at a negative interest rate in April.

Don’t think that negative interest rates can happen in the US? Wrong!

You may have missed it, but the United States is now also a member of the “0% club”—most recently in October, when it sold $21 billion worth of 3 month bills at 0% interest.


However, that is not the first time. Since 2008, the US government has held 46 Treasury bill auctions where yields have been zero. The next step after zero is negative… and it’s becoming a real possibility. Welcome to the European model of starving savers to death!

The implications for investors are monumental.

Ask yourself, what would you do with your money if your bank started to charge you to deposit it there? Would you pay hundreds, perhaps thousands of dollars a year just to keep your money in a bank?

Option #1: Hold your nose and pay the fees.
Option #2: Move those dollars into the stock market; perhaps into dividend paying stocks.
Option #3: Buy real estate; perhaps income generating real estate.
Option #4: Invest in collectibles, like art or classic cars.
Option #5: Stuff your money under a mattress.


The point I am trying to make is, the rules for successful income investing have completely changed. If you are living (or plan on living) off the earnings of your savings, you better adapt your strategy to the new world of negative interest rates…..or plan on working as a Walmart greeter during your golden years.


Even if you think I’m nuts about negative interest rates coming to the US, there is no doubt that interest rates are not climbing anytime soon.

According to the Federal Reserve.....
"The Committee anticipates that inflation will remain quite low in the coming months.”
“The stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate.”

With the US national debt approaching $19 trillion, our government doesn’t have any choice but to keep interest rates low. Sadly, our politicians are paying for their spendthrift ways by starving responsible savers.
But you can (and should) fight back by changing the way you think about investing for income. You can start by giving my high yield income letter, Yield Shark, a risk free try with 90 day money back guarantee.

Tony Sagami
Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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Thursday, October 15, 2015

This Unique Oil Stock is Offering A Huge Dividend Yield

By Justin Spittler

One of Casey Research's biggest calls this year is paying off.....…
In early August, E.B. Tucker, editor of The Casey Report, told subscribers how to profit from the world’s oversupply of oil. If you read financial newspapers for more than a week, you’ll notice that global oil production is near record highs. Last year, global oil output reached its highest level in at least twenty five years, according to the U.S. Energy Information Administration (EIA).

High oil prices were a big reason for the surge in production. Between 2011 and mid 2014, the price of oil hovered around $90/barrel. But oil peaked at $106 last June, and it’s been falling ever since. Today, a barrel of oil goes for about $45. Even though the price of oil has been cut in half, global oil production is still near all time highs. The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 12 oil producing nations, is still pumping a record amount of oil. And it plans to increase production next year. In the U.S., oil supplies are still about 100 million barrels above their five year average.

E.B. explains why some countries have no choice but to keep pumping oil.....
Oil is the foundation of many countries’ economies. Take Venezuela, for example. Venezuela produces over 2.5 million barrels per day (BPD) of oil. Oil exports make up half of the country’s economic output. The country is so dependent on oil that cutting production would be economic suicide. This is happening across the globe. Giant state run oil companies continue to pump because it’s the only way for these countries to make money. This is why global oil production has not fallen even though the price of oil has been cut in half. In many areas, production has actually increased.

The extra oil has weighed on oil prices......
Weak oil prices have hammered virtually all oil companies…including the biggest oil companies on the planet. Profits for ExxonMobil (XOM), the largest U.S. oil company, fell 52% during the second quarter due to weak oil prices. Its stock is now down 24% since oil peaked last summer. Chevron (CVX), America’s second biggest oil company, earned its lowest profit in twelve years during the second quarter. Its stock price is down 34% since last summer’s peak. The entire industry is struggling. XOP, an ETF that holds the largest oil explorers and producers, has dropped 52% over the same period.

But oil tanker companies are making more money than they have in seven years...…
Unlike oil producers, oil tanker companies don’t need high oil prices to make big profits. That’s because they make money based on how much oil they move. Their revenues aren’t directly tied to the price of oil.
On Monday, Bloomberg Business explained why oil tankers are making the most money they’ve made in years. The world’s biggest crude oil tankers earned more than $100,000 a day for the first time since 2008. Ships hauling two million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.

Casey Research’s favorite oil tanker company is cashing in on higher shipping rates...…
On August 13, E.B. Tucker told readers of The Casey Report about a company called Euronav (EURN).
According to E.B., Euronav is the best oil tanker company in the world. The company has one of the newest and largest fleets on the planet. Euronav’s sales more than doubled during the first half of the year.

The company’s EBITDA (earnings before taxes, interest, and accounting charges) quadrupled. And because Euronav’s policy is to pay out at least 80% of its profits as dividends, the company doubled its dividend payment last quarter.

Investors who acted on E.B.’s recommendation have already pocketed a 5% quarterly dividend. Based on its last two dividends, Euronav is paying an annualized yield of 12%. That’s not bad considering 10 Treasuries pay just 2.07% right now. Euronav’s stock is up big too. It has gained 15% in the past month alone...while the S&P just gained 1%.

E.B. thinks Euronav is just getting started.....
Euronav’s stock price has rocketed in recent weeks, but it’s going to go much higher. Euronav is a great business and the economics of shipping oil are improving. The market hasn’t fully caught on to how good things are in the industry right now. Shipping rates are ripping higher, but the supply of ships can’t keep up with demand. The largest supertankers can carry 2 million barrels of oil at a time. They measure three football fields long. These ships take years to build and cost about $100 million each. Shipping rates should stay high as the world works through this huge oil glut.

It’s a great time to own shipping companies. And Euronav is the best of the bunch. Euronav has shot up since E.B. recommended it, but the buying window hasn’t closed. In fact, Euronav is still below E.B.’s “buy under” price of $17.50. You can learn more about Euronav by taking The Casey Report for a risk free spin today. You’ll also learn about E.B.’s other top investment ideas, including a unique way to profit from the “digital revolution” in money. Click here to get started.



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Saturday, September 26, 2015

New Video: Kinder Morgan CEO "Sell Off in Stock Price Has Been Completely Indiscriminate"

Kinder Morgan CEO Steve Kean has released a video pitching KMI shares at an all to low price. Kean points out that those low prices are unreasonable due to the fee based nature of Kinder Morgans businesses. Kean points to numerous facts including the likelihood that new Kinder Morgan projects will not be cancelled during a period when the competition is seeing future projects being cancelled at an alarming rate.

Kean believes that the sell off in its stock price this year has been completely indiscriminate, which is creating a buying opportunity for investors. And insiders are backing up his opinion with their own money. Kinder Morgan has very little exposure to commodity prices as its cash flow is locked up while its growth is actually primarily driven by demand for inexpensive natural gas. That's why he remains confident that the company's current dividend is safe and so is the plan to grow the payout by 10% per year through 2020.

Watch the video below.



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Wednesday, July 29, 2015

The Wall Street Titanic and You

By Tony Sagami

“I would highlight that equity market valuations at this point generally are quite high.”
—Janet Yellen

Are you worried about the stock market? If you are, you’re in the minority of investors.
Greece… China… don’t worry about it!

At least that seems to be Wall Street’s reaction to what could have been a catastrophic fall of dominoes if the European and Chinese governments hadn’t come to the rescue with another massive monetary intervention.

If you think you’ve heard the last about Greece or a Chinese stock market meltdown, you’re in the majority. Investors are pretty darn confident about the stock market.


The John Hancock Investor Sentiment Index hit +29 in the second quarter, the highest reading since the inception of the index in January of 2011.

However, overconfidence is dangerous and often accompanies market tops.

If you listen to the hear no evil cheerleaders on Wall Street and CNBC, you might be inclined to think the bull market will last a couple more decades, but we haven’t had a major correction since 2011, and the Nasdaq hit an all time high last week.

Investors are so enthusiastic that the exuberance is spilling beyond stock certificates to the high brow world of collectible art.


Investment gamblers are shopping up art in record droves. In the last major art auction, prices for collectible art reached all time highs, and somebody with more money than brains paid $32.8 million for an Andy Warhol painting of a $1 bill.

Who says a dollar doesn’t buy what it used to?

I’m not saying that a new bear market will start tomorrow morning, but I’m suggesting that bear markets hurt more and last longer than most investors realize.

The reality is that bear markets historically occur about every four and a half to five years, which means we are overdue. And the average loss during a bear market is a whopping 38%. Ouch!


On average, a bear market lasts about two and a half years… but averages can be misleading.
In the 1973-74 bear market, investors had to wait seven and a half years to get back to even. In the 2000-02 bear market, investors didn’t break even until 2007.


Unless you, too, have drunk the Wall Street Kool Aid, you should have some type of emergency back up plan for the next bear market. There are three basic options:

Option #1: Do nothing, get clobbered, and wait between two and a half and 10 years to get your money back. Most people think they can ride out bear markets, but the reality is that most investors—professional and individual alike—panic and sell when the pain gets too severe.

Option #2: Have some sort of defensive selling strategy in place to avoid the big downturns. That could be some type of simple moving average selling discipline or a more complex technical analysis. At minimum, I highly recommend the use of stop losses.

Option #3: Buy some portfolio insurance with put options or inverse ETFs. That’s exactly what my Rational Bear subscribers are doing, and I expect those bear market bets to pay off in a big, big way.

Whether it is next week, next month, or next year—a bear market for US stocks is coming, and I hope you’ll have a strategy in place to protect yourself.

If you'd like to hear what worries me most about the stock market, here is a link to an interview I did last week with old friend and market watchdog Gary Halbert.
Tony Sagami
Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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Wednesday, October 22, 2014

Mid Week Commodities Summary for Wednesday October 22nd - Crude Oil, Natural Gas, Gold, Silver, Coffee, Sugar, Euro, Dollar

Crude oil closed down $2.12 at $80.38 today. Prices closed near the session low and closed at a two plus year low close today. The bears have the solid near term technical advantage.

Natural gas closed down 5.1 cents at $3.749 today. Prices closed near the session low today and closed at a contract low close. The natural gas bears have the solid overall near term technical advantage.

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Gold futures closed down $7.20 an ounce at $1,244.50 today. Prices closed nearer the session low on profit taking after hitting a six-week high on Tuesday. Gold bears have the overall near-term technical advantage. However, a fledgling three-week-old uptrend is in place on the daily bar chart.

Silver futures closed down $0.379 at $17.17 today. Prices closed near the session low today. The silver bears have the firm overall near term technical advantage.

Todays top Dividend Plays....Stocks and ETFs

Coffee closed down 850 points at 191.10 cents today. Prices closed near the session low and hit another three week low today. It appears a market top is in place. The coffee bears have gained the near term technical advantage.

Sugar closed up 6 points at 16.50 cents today. Prices closed nearer the session low today. Sugar bears have the firm overall near-term technical advantage.

Oil Deflation, the Saudi’s Muslim Frankenstein, and the Colder War

The December Euro currency closed down 79 points at 1.2651 today. Prices closed nearer the session low again today. The Euro bears have the firm overall near-term technical advantage and are regaining downside momentum.

The U.S. dollar index closed up 0.436 at 85.840 today. Prices closed near the session high today. The greenback bulls have the overall near-term technical advantage and are regaining upside momentum.

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Saturday, October 11, 2014

The Broken State and How to Fix It

By Casey Research

The United States of America is not what it used to be. Unsustainable mountains of debt, continuous meddling by the government and Fed to “stimulate the economy,” and the U.S. dollar’s dwindling status as the world’s reserve currency are very real threats to Americans’ standard of living. Here are some opinions from the recently concluded Casey Research Fall Summit on the state of the state and how to fix it.

Marc Victor, a criminal defense attorney from Arizona and a staunch liberty advocate, says there’s really no such thing as “the state”—“it’s just some people bossing other people around.”

Not everyone wants to fix things, he says; the bosses like the status quo. For example, aside from drug lords, DEA agents are the ones benefiting most from the “War on Drugs.”

Victor believes that democracy and freedom are incompatible, since “democracy is majority rule, and freedom is self-rule.” If you want to bring true freedom to America, he says, winning hearts and minds is the only way to reboot this country and create a free society.

Paul Rosenberg, adventure capitalist, Casey Research contributor, and editor of “A Free Man’s Take,” views America’s future similarly. He thinks the United States is in a state of entropy.

The bad news, says Rosenberg, is that there will be no revolution. The good news is that the peak of citizens’ obedience to the state is behind us, and people are getting fed up with the government’s shenanigans.

Real change is slow, he says, so we must work persistently to create a better world.

Stephen Moore, chief economist at the Heritage Foundation, says the problem is liberal economic policy: Red states in the US, he says, have blown away blue states in job creation since 1990. Texas alone accounts for the entire net growth of the US economy over the past five years.

As another proof point in favor of a free market economy, Moore emphasizes that both Obama and Reagan took office during terrible economic times. While Obama has raised taxes and instituted Obamacare, Reagan cut taxes and regulation. As a result, the Reagan economic recovery was almost twice as robust as the Obama “recovery.”

One of the US’s biggest problems, says Moore, is that companies can’t reinvest profits because dividend, capital gains, and income taxes all have increased under Obama. Corporate taxes in the rest of the world have dramatically declined in the last 25 years, but in the US, they haven’t budged. The average corporate tax rate around the world is 24%—in the US, it’s 38%.

Overall, though, Moore is bullish on the U.S. economy. American companies, he says, are the best run in the world, if only the US government would adopt less economically destructive policies.

Doug Casey, chairman of Casey Research, legendary speculator, and best-selling financial author, isn’t so optimistic. First of all, he says, we’re in the Greater Depression right now, which began in 2008. He fears it’s too late to repair America, but says if anyone would attempt to do so, the following seven step program would help:
  • Allow the collapse of “zombie companies” (companies that are only being held up by government handouts and other cash infusions).
  • Abolish all regulatory agencies.
  • Abolish the Federal Reserve.
  • Cut the size of the military by at least 90%.
  • Sell all US government assets.
  • Eliminate the income tax.
  • Default on the national debt.
Of course, says Casey, that’s not going to happen, so individual investors shouldn’t hope for a political solution or waste their time and money trying to stop the inevitable collapse of the U.S. economy. The only way to save yourself and your assets is to internationalize.

He recommends owning significant assets outside your home country: for example, by buying foreign real estate. You should also buy and store gold, “the only financial asset that’s not simultaneously someone else’s liability.”

Casey’s suggestions include going short bubbles that are about to burst (like Japanese bonds denominated in yen), selling expensive assets like collectible cars and expensive real estate in major cities, as well as looking toward places like Africa as contrarian investment opportunities.

Nick Giambruno, senior editor of International Man, agrees that internationalizing your wealth—and yourself—is the most prudent way to go for today’s high net worth investors. It ensures that “no single government can control your destiny,” and that you put your money, business, and yourself where they are treated best.

You should internationalize each of these six aspects of your life, says Giambruno: our assets; your citizenship; your income/business; your legal residency; your lifestyle residency; and your digital presence.
Regarding your assets, you can find better capitalized, more liquid banks abroad, and using international brokerage accounts can provide you access to new investment markets.

To hear all of Nick Giambruno’s detailed tips on how to go global, as well as every single presentation of the Summit, order your 26+-hour Summit Audio Collection now. It’s available in CD and/or MP3 format.

Learn More Here


The article The Broken State and How to Fix It was originally published at Casey Research.


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Thursday, August 21, 2014

Stop Investing in Leveraged ETFs

By Andrey Dashkov

Bigger, faster, better. That’s the turbocharged investment we all want. Miller’s Money Forever subscribers who pay close attention to our portfolio, though, will notice that we don’t hold leveraged ETFs—those with “2x” or “inverse” or “ultra” in their names, which some investors mistake for “better.”

Exchange-traded funds (ETFs) are a great tool for many portfolios. They allow investors to profit from movements in a huge variety of assets grouped by industry, geography, presence in a certain index, or other criteria. You can find ETFs tracking automobile producers, cotton futures, or cows.

For our purposes, ETFs make it easier to diversify within a certain group of companies—easier because you don’t have to buy them individually. You buy the ETF and leave it to its managers to balance the portfolio when needed.

We have several ETFs in the Money Forever portfolio, and they have served us well so far. They expose us to several universes, such as international stocks, foreign dividend-paying companies, convertible securities, and others.

Why Turbocharged Isn’t Always Better


So, if we think the underlying index or asset class will move in our favor, why wouldn’t we opt for the turbocharged version—the versions that use leverage (credit) to achieve gains two times higher?
First, because we’re very cautious about volatility, and leveraged ETFs are designed to be less stable than the underlying assets. Second, there is a trick to leveraged ETFs that can make your investment in them stink even if the underlying index or asset does well.

Before we get to the details, let me pose two questions:
  • If the S&P 500 goes up by 5% over several days, how much would a 2x leveraged ETF based on the index earn?
  • If the S&P 500 goes up and down, then rises, and after a while ends up flat, will our ETF end up flat too?

If you answer 10% to the first question, you may be correct, and that’s the caveat: you won’t be correct 100% of the time. You can’t just multiply an index’s total gain by the ETF’s factor to gauge how much you’ll earn, because leveraged ETFs track daily gains, not total ones.

To show how that works, here’s a brief example that will also answer question number two.

Day # Index Price Daily Return ETF Price
Index ETF
1,900 $100.00
1 1,800 -5.26% -10.53% $89.47
2 1,870 3.89% 7.78% $96.43
3 2,000 6.95% 13.90% $109.84
4 1,900 -5.00% -10.00% $98.86
Total return 0.0% -1.1%
Source: TheTradeSurfer


What you’re looking at here is a hypothetical index with a value of 1,900 at the beginning of our period. It goes up and down for four days, and then is back to 1,900 by the end of day 4. There is also an ETF that starts with a price of $100 and doubles the daily gains of the index.


On the first day, the index goes down to 1,800 for a daily loss of 5.26%. This forces the daily loss of the ETF to be 10.53% (including rounding error), and the resulting price of the ETF is $89.47. The next day the index is up 3.89%, forcing the ETF to grow by 7.78%, to $96.43, and so on.

We designed this table to show that even though the underlying index is back to 1,900 in five days, returning 0% in total gain, the ETF is down 1.1% by the end of day 4.

It works like this because ETFs are designed to track daily returns, not mirror longer-term performance of the underlying index, and because of how cumulative returns work. If one share of the ETF costs $100 at the beginning of the period and the market dropped 5%, we should expect double the drop. Our share would now be worth $90. If the next day it reverses and goes up 5%, we should expect double the increase. We would be right in doing so, but our share would be worth $99 now, not $100—because it increased 10% above the $90 closing price the day before.

Leveraged ETFs Are for Traders, Not Investors


If a trader is smart and lucky, she or he would buy the ETF at the beginning of day 3 at $96.43, sell at $109.84, and realize a gain of 14%. But if one bought at day 0 and held until the end of our period, one would lose money even though the underlying index ended up flat.

In general, no one can predict where an ETF will end up because it’s impossible to tell in advance what pattern the underlying index will follow. In practice, it means that an ETF only partially tracks the underlying index; its performance also depends on its own past results.

The ideal case for investing in an ETF (we assume it’s long the market) would be to buy it at the beginning of a multi-day, uninterrupted uptrend. In that case, it would come very close to doubling the market’s performance. But such winning streaks are impossible to forecast, and short-term trading like this is not our focus.

We don’t recommend leveraged ETFs in our portfolio because they’re geared for traders, and we take a longer-term perspective. We are investors.

The additional potential reward from a turbocharged ETF doesn’t warrant the additional risk, particularly when you’re investing retirement money. There are safer ways to maximize your retirement income. Learn more about our strategies for doing just that by signing up for Miller’s Money Weekly, our free weekly e-letter that educates conservative investors about timely investment strategies. You’ll receive ahead-of-the-curve financial insight and commentary right in your inbox every Thursday. Start building a rich retirement by signing up today.

The article Stop Investing in Leveraged ETFs was originally published at Millers Money


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Tuesday, July 1, 2014

5 Simple Rules to Evolve Past the Hot Stock List

By Andrey Dashkov

If you’re a typical small time investor, chances are you prefer to let a team of analysts fuss about such irksome things as correlation and beta. Maybe you’ve bought a stock because your brother in law gave you a hot tip, maybe you heard something about it on a financial news show, or maybe you just loved the company’s product.


Friends often ask me for “hot stock tips”—which is like walking up to someone at the craps table and asking what number to bet on. An accomplished craps player will have position limits, stop losses, income targets, and an overall strategy that does not hinge on one roll of the dice. You need an overall strategy long before you put money down.

So, what do I tell those friends asking for hot stock tips? Well, that they can retire rich with a 50-20-30 portfolio:
  • Stocks. 50% in solid, diversified stocks providing healthy dividends and appreciation.
  • High Yield. 20% in high yield, dividend paying investments coupled with appropriate safety measures. These holdings are bought for yield; any appreciation is a nice bonus.
  • Stable Income. 30% in conservative, stable income vehicles.
Unless you’re starting entirely from scratch, you should review your current portfolio allocations, identify where you’re over or underallocated, and then look for investments to fill those holes. In our portfolio here at Miller's Money Forever, we separate our recommendations into StocksHigh Yield, and Stable Income to help you do just that.

The Art of the Pick

 

By the time an investment lands in our portfolio, we’ve already run it through our Five Point Balancing Test. When your boasting brother in law tempts you with a “can’t-miss opportunity” or some pundit touts a hot tech company on television, you can come back to these five points, again and again.
  1. Is it a solid company or investment vehicle? Investing your retirement money safely is a must. How do you know if a company is solid? Take the time to validate essential company information, particularly when the recommendation comes from a source with questionable motivation.
  2. Does it provide good income? A good stock combines a robust dividend and appreciation potential.
  3. Is there a good chance for appreciation? There are two types of appreciating stocks: those that rise because of general market conditions and those that rise further because of the way management runs the business. We want both.
  4. Does it protect against inflation? High inflation is one of the biggest enemies of a retirement portfolio.
  5. Is it easily reversible? Ask yourself, “Can I quickly and easily reverse this investment if something unexpected occurs?” The ability to liquidate inexpensively is critical to correcting errors.

Marking the Bull’s Eye So You Can Hit It

 

It’s worthwhile to write down your goal—including an income target and the price at which you’ll sell if things head south—with every investment. After all, if you can’t see the bull’s eye, how will you know if you’ve hit it? Buying any investment because a trusted adviser, newsletter, or pundit recommended it is not a good enough reason. Buying because your portfolio has a hole, you understand the company, the investment vehicle, the risks, and the potential is.

Remember, retiring rich means having enough money to enjoy your lifestyle without money worries. Do your homework on every investment and you’ll make that pleasant thought your life’s reality. Every week, the Miller’s Money team provides no nonsense, practical advice about the best ways to invest for your retirement in  Miller’s Money Weekly Sign up here to receive it every Thursday.

The article 5 Simple Rules to Evolve Past the Hot-Stock List was originally published at Millers Money


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Sunday, February 23, 2014

Master Limited Partnerships Generate Safe Income for Seniors and Savers

By Dennis Miller

It's time to answer the "who, what, when, where, and why" of investing in master limited partnerships (MLPs)…....


Andrey Dashkov, senior research analyst at Miller’s Money Forever, is the rare person who, when you asked for a hammer comes back with a hammer, nails, staples, and glue. In short, he often comes up with better solutions to tricky problems than I ever thought possible.

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Since Andrey and I are on a nonstop mission to unearth the best opportunities for generating safe income, we have looked to MLPs more than once. Many Business Development Companies (BDCs) and Real Estate Investment Trusts (REITs) also fit the bill. Today, however, we are focusing exclusively on how MLPs can produce a healthy and steady income without exposing your nest egg to unwelcome risks.


The Nuts and Bolts of MLPs

 

By Andrey Dashkov
An MLP is an entity structured as a limited partnership instead of the traditional C-corporation. This allows the company to avoid corporate-level taxes. The limited partners pay most of the taxes, which means that MLPs are essentially pass-through entities.

In the United States, the net effective rate of corporate income tax is 40%. That means a corporation calculates its profit, pays the appropriate income tax to the government, and then pays dividends from what remains. With an MLP all the profits are passed through to the unit holders.

While a traditional corporation can choose to pay a dividend, an MLP does not have that option. In order to maintain their status, MLPs are required to generate at least 90% of their income from qualifying sources and distribute the major portion of that income. In most cases these sources include activities related to the production, processing, and distribution of energy commodities, including gas, oil, and coal.

The government gives a special treatment to these activities to encourage investment into the United States' energy infrastructure.

Limited partners (LPs) own the company together with a general partner (GP). The GP takes care of the day-to-day operations, typically holds a 2% stake, and can usually receive incentive distribution rights (IDRs). LPs, called unit holders, (which we can become by buying shares of publicly traded MLPs) receive dividend-like cash distributions. LPs, unlike traditional shareholders, do not have voting rights.
There are many advantages to MLPs, including:
  • Attractive yields;
  • Inflation protection;
  • Portfolio diversification;
  • Tax advantages; and
  • Resilient business model.
 

Attractive Yields

 

MLPs pay various yields that average 5-10%. Data for the Alerian Index, which tracks the top 50 MLPs, show that in Q2 2013 MLP yields varied from 3-12%, with an average of 6.5%.Besides the actual yield, MLP investors can count on distribution growth. Dividends per share of Alerian Index constituents grew at a compounded rate of 4.1% over the past five years.

Inflation Protection

 

Several factors hedge against inflation:
  • Inflation-adjusted contracts renewed periodically;
  • Distribution growth has historically outpaced the growth in CPI; and
  • MLP unit (share) prices are weakly correlated with movements in inflation and interest rates.

 

Portfolio Diversification

 

MLPs have a low correlation to other asset classes, including equity, debt, and commodities. However, for a short time they may correlate with any asset class or the market in general.

MLPs are less volatile than the broad market. Currently at 0.5, the average beta of Alerian Index, is quite conservative. This suggests that if the broad market goes down by 10%, we should expect the Alerian Index to drop by 5%. An individual company's volatility may stray from the average, but in general MLPs should be much less volatile than the market as a whole.

Generally, the vast majority of MLPs operate in the energy sector, but usually do not own the underlying commodities; this is part of the reason for the decreased volatility. Their income generally consists of transportation fees. However, some MLPs can be exposed to commodity risk (coal, propane, and oil exploration and production MLPs, among others). Economy-wide consequences of a severe recession may impact the demand for energy commodities and, in turn, the profitability of transportation companies.

Tax Advantages

 

An MLP investor typically receives a tax shield of 80-90% of one's annual cash distributions, which is a very nice feature. This defers tax payments until the unit (your share) is sold.

The tax payment schedule for an MLP is illustrated below. Assume you bought one unit of an MLP for $20 and sold it after five years for $22, having received $2 annually in years 1-5. Assuming your ordinary income tax is 35%, and the long-term (LT) capital gains are taxed at 15%, you can see the breakdown.

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Purchase price $20.00
Distribution per unit $2.00 $2.00 $2.00 $2.00 $2.00
Income per unit $2.00 $2.00 $2.00 $2.00 $2.00
Depeciation expense $1.60 $1.60 $1.60 $1.60 $1.60
Cost basis $20.00 $18.40 $16.80 $15.20 $13.60 $12.00
Sale price $22.00
Taxes:
Earnings per unit
$0.40 $0.40 $0.40 $0.40 $0.40
Depreciation recapture
$8.00
Amount subject to ordinary tax rates $0.40 $0.40 $0.40 $0.40 $8.40
Ordinary tax rates
35% 35% 35% 35% 35%
Taxes owed at ordinary rates 0.14 0.14 0.14 0.14 2.94
Amount subject to LT capital gains $2.00
LT capital gains rate
15%
Taxes owed at ordinary rates $0.30
Total taxes owed $0.14 $0.14 $0.14 $0.14 $3.24
Source: Credit Suisse


Resilient Business Model



During periods of economic uncertainty, MLPs remain a solid source of income. In 2008-2009, 78% of all energy MLPs either maintained or increased their distributions. In comparison, 85% of real estate investment trusts (REITs) either cut or suspended dividend payments.


Now, a note of caution is in order. Despite the excellent income track record, MLP share prices stumbled as they became more correlated to the general market. However, the investors who held them through the difficult times saw the share price rise again. MLPs returned to January 2008 levels in early 2010; the S&P 500 did not do the same until 2013.

The same plunge could happen again if a severe economic crisis hits. As we said, MLPs may move with a falling market. The fact that more investors are aware of MLPs now than a decade or two ago adds to this risk. As investors have searched for yield, MLPs have become more mainstream; however, they are by no means your average S&P 500 stock.

Also, there are two immediately positive outcomes to the higher investor awareness of MLPs: higher liquidity and access to more capital. In the Money Forever portfolio we look for the best and safest available and then protect our downside with protective stop losses.

Principal Risk Areas

 

With any investment offering a reward, there is a corresponding risk. Here are the key risks of MLPs.
Risk #1: Economic downturns. If the US economy is hit by a severe economic crisis that drives the demand for energy products down, MLPs will take a blow. Like a trucking business that transports products for which the demand is going down, if less product is shipped through a pipeline owned by an MLP, their revenue may decrease.

This, however, is where some investors may get confused. If a pipeline MLP has a contract with an energy company, the price of the transported product may increase or decrease, but at the same time, the MLP may have a fixed-fee arrangement with the energy company. So, if the volume flowing through the pipeline remains steady, its revenue should not fluctuate.

Risk #2: Access to capital and interest rates. As a general rule, MLPs return 100% of their distributable cash flow (DCF), less a reserve determined by the general partner, to the unit holders. Unlike real estate investment trusts that must give away a certain share of their cash flow every quarter, MLP distributions are governed by individual partnership agreements, so the terms vary.

However, the majority of cash an MLP earns will be distributed, so it's only natural that they turn to issuing debt or equity to finance growth projects. When their interest costs rise MLPs that need capital right away will be at a disadvantage. We prefer companies with enough internally generated capital to finance growth, and no major ongoing projects that require billion dollar loans and thereby run the risk of being underfunded or funded at an unfavorable interest rate. We also prefer companies with fixed rate debt to floating rate.

Risk #3: Management and execution. Management should have a track record of successful investment in new assets and cash generation to finance distributions.

We also look for companies that have 5 to 10 year capital plans as part of the write up, and a history of following those plans. They tend to fare better when it comes to keeping capital costs under control.

Risk #4: Sustainability of cash distributions. The above three risks boil down to whether or not an MLP will be able to churn out cash for its unit holders. The distributions should be sustainable, and should grow year after year. The primary reason for buying an MLP is income. We need to make sure the cash keeps coming in.

A company's track record of cash payments is a good, but not perfect, indicator of how it will perform in the future. Variable-rate distributions tend to, well, vary more significantly than those of traditional MLPs.

Distributions in the midstream sector tend to be more predictable; natural gas pipelines and storage generate the most stable cash flows while refining/upstream MLPs do so to a lesser extent. We carefully consider these factors when evaluating our investment options.

The "Taper" Factor

 

When Ben Bernanke uttered the word "taper" on June 19, the markets jittered. Even the traditionally defensive sectors such as utilities took a hit.



MLPs were not immune to the potential implications of the Fed easing up on its bond-purchase program which many believe is helping the US economy. The market panicked, and MLPs dropped in price. Readers will note the index dropped in the middle of 2013. The drop was less steep than those in either the broad market or the utilities sector and MLPs rebounded—in less than a week, while it took approximately three weeks for both the S&P 500 and XLU to get back to their June 18 levels.

When evaluating a potential candidate, a prudent investor will see how they have performed during times of market volatility. Sometimes trading a bit of yield for much less volatility is a smart move.

The IRA Caveat

 

We do not recommend putting MLPs in an IRA account. By placing an MLP in a tax-deferred account, you may lose part of the tax advantage the MLP structure provides. In an IRA account, unrelated business taxable income (UBTI) of over $1,000 is subject to federal income tax. If you earn more than $1,000 annually from an MLP's cash distributions and other sources of UBTI, the excess will be taxable. This becomes more likely over time, since most MLPs increase their cash distributions.

A Peek Behind the Curtain

 

In summary, an MLP gives us a couple of advantages from a tax perspective. There is more money to pay out in dividends. Unlike a traditional corporate dividend, which is paid after a corporation pays income taxes, MLPs do not pay corporate income taxes. An MLP's income is taxed only once, when the dividends are received.

Initially, when you buy an MLP, only 10 to 20 percent of the MLP distribution is considered taxable income. The rest of the distribution is considered return of capital and isn't subject to tax when you receive the dividend. Basically you put off paying some taxes for the short term. When you eventually sell your MLP, the tax is adjusted so the net amount of taxes is the same. The formula is technical, but the information you receive from your broker can be given to a competent CPA and you should be fine.

You can see why MLPs have become so popular in a yield-starved environment. While they have attracted a lot of investors, there are still some great opportunities for those willing to do their homework.

Dennis and I added our favorite MLP to the Money Forever portfolio in October, and we are chomping at the bit to share it with you… But, because of the special relationship we share with our paid subscribers, you'll need to sign up to for a premium subscription at no-risk to your pocketbook to find out what it is. Subscribe to our regular monthly newsletter and take a peek at the MLP we recommended, along with our entire portfolio.

If, after 90 days, you decide it's not right for you, we'll return 100% of your money without a fuss. Click here to get started.



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