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Top Three MLPs for Income Investors


Nov. 20 2020, Updated 3:55 p.m. ET

Are MLPs attractive?

Some income investors looking for stable and regular income might think that MLPs are too risky. The carnage in the MLP space over the last four years is enough to turn even the most aggressive investors away. However, there’s a widespread consensus that the worst is over for the sector. With the impressive rise in MLP stock prices in 2019, savvy investors seem to be willing to give the sector a second chance. Most of the MLPs seem to be trading at attractive valuations.

So, which MLPs should investors look at considering the risks? We’ll discuss the top three MLPs in this series.

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Top three MLPs

The selected MLPs are Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP), and MPLX (MPLX). They’re among the top five MLPs by market capitalization. Before we discuss these three MLPs, let’s take a quick look at the other two MLPs—Plains All American Pipeline (PAA) and Energy Transfer (ET).

Plains All American is very crude-centric and tends to fluctuate along with crude oil prices. Plains All American also offers the lowest yield among the five MLPs.

Energy Transfer’s ~8.6% yield looks attractive. However, given the company’s relatively high leverage, its complex history, and track record of stealth distribution cuts by its predecessors, its higher yield looks partly justified. Due to the high leverage level, the company faces greater risk if any of its pipeline projects get stalled or delayed significantly. While Energy Transfer could offer attractive returns, it’s more suitable for investors with a slightly higher risk appetite.

Next, we’ll discuss the top three MLPs’ yields.


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