E Finding Monthly Income In MLPs

In review of 2016 market returns, some of the best returns occurred in master limited partnerships (MLPs).  Better yet, this happened in closed-end funds (CEF) setup to invest in MLPs.  Some of these CEFs produced price returns above 70% in 2016 while offering monthly dividends with annual dividend yields greater than 6%.  In 2016, the S&P 500 had a price return of 9.84% and 12.25% including dividends.  The CEFs we have identified were a significantly better investment than the general market in 2016.

Would you be interested in having the opportunity of buying the best performing CEFs at a discount price to net asset value (NAV).  As an investor, you should know that a CEF trades like a stock in the market with price action from market trades.  The CEF also has a valuation of the asset it has in the fund which are priced as a net asset valuation.  The NAV is the actual valuation of the CEF but the market price of the CEF will be different.  This variation between the NAV and market price creates a premium or discount market price for a CEF.  A prudent investor will look to purchase CEF share when they are trading at a discount.

In 2016, two CEFs with the best returns include Neuberger Berman MLP Income Fund (NML) and the First Trust New Opportunities MLP and Energy Fund (FPL).  Here is a profile of each CEF:

FPL is to seek a high level of total return and will seek to provide its Common Shareholders with a vehicle to invest in a portfolio of cash-generating securities, with a focus on investing in MLPs and MLP-related entities in the energy sector and energy utilities industries that are weighted towards non-cyclical, fee-for-service revenues, The Fund will invest at least 65% of its Managed Assets in equity securities issued by energy sector MLPs and energy sector and energy utilities MLP-related entities.

In the past year, FPL had a price return of 75.72% which is an outstanding return.  It currently trades at $13.46 which is a 3.6% discount to its NAV.  For income investors, it pays monthly dividends with an annual yield of 9.36%.  It has declared a dividend distribution of $0.105 per share in February.

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Greg Group 2 years ago Author's comment

A couple comments: investors are focused on income in these trades; energy has rebounded from its low prices and oil should remain around $50 a barrel. FPL was trading at a 4% premium a few months ago and now trades at a discount - this is around a 8% decrease in valuation. This presents a little price upside in addition to a nice monthly income.

Thanks for your comments.

Carol Wydra 2 years ago Contributor's comment

Aren't these overvalued at these levels? They both look stretched to me regardless of the NAV yada yada.

Carol Wydra 2 years ago Contributor's comment

K-1's in either of these?