3 Top-Ranked MLPs Set To Explode In 2019

Energy prices have been witnessing downside for a while now. Prices have declined around 30% from multi-year highs of above $76 a barrel in early October. Oil is facing a two-pronged attack — rising supply from major producers and apprehension of economic slowdown that will dampen demand. Also, the OPEC-led supply cuts are unlikely to offset the market surplus.

While the direction of crude's movement is anybody's guess, it will be prudent for investors to maintain caution in these uncertain times and withdraw for a while. Meanwhile, Master Limited Partnerships (MLPs) are a safer bet amid the commodity price volatility and offer considerable returns with low risk.

As the name implies, MLP is a form of partnership that regularly pays attractive distribution yields. An MLP includes a variant of stock market investment, where investors buy units (not shares) of the partnership (not company) that trade on exchanges. The benchmark Alerian MLP Index, tracking 40 partnerships, is an appropriate tool to follow the movement in MLPs.  

The surge in oil and natural gas production in the past few years has made pipelines, storage and associated energy infrastructure MLPs  attractive bets in the energy midstream space. This is because these network providers generate a major portion of their revenues from fee-based contracts based on volume and are not affected by commodity price fluctuations.

What are MLPs?

MLPs differ from regular stocks as interests in them are referred as units and the unitholders (not shareholders) are partners in the business. Importantly, these hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly traded securities.

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