Banking giant BofA-Merrill Lynch invests in High-Yield Master Limited Partnerships (MLPs), targeting stocks such as MEMP, LGCY, BBEP, KYN, SRV, and CS.
In the current low interest rate environment, Master Limited Partnerships (MLPs) are gaining attention for their attractive yield component. This sector, known for providing investors with both yield and return potential, has been favoured by financial institutions such as Bank of America Corp. and Credit Suisse Group.
In 2012, the Alerian MLP Index gained 4.8%, while the broader market saw a 16.1% increase. This slight underperformance in the past may be set to change, according to Credit Suisse, which anticipates a 'catch-up' rally for MLPs.
For investors seeking diversification in the MLP space, exchange traded funds (ETFs) such as the Kayne Anderson MLP Investment Co. (NYSE: KYN) and the Cushing MLP Total Return Fund (NYSE: SRV) could be considered. However, this article does not provide specific details about these ETFs beyond their status as baskets of MLP names.
Fitch Ratings has given a positive multi-year outlook on the MLP segment, adding to the sector's appeal. The Federal Reserve governors are also discussing the ending or tapering off of quantitative easing programs, which could further boost the MLP sector.
MLPs based in various regions, such as west Texas, the Permian Basin, mid-continent, and the Rocky Mountain regions, are offering promising opportunities. For instance, Legacy Reserves L.P. (NASDAQ: LGCY), based in west Texas, has a distribution of 8.70% to unitholders and a Wall St. consensus price target of $31.
Memorial Production Partners L.P. (NASDAQ: MEMP), based in Houston, has a distribution of $2.03 per unit, yielding 11.10%. The Thomson/First call price target for MEMP is $21.50. Another high-yielding MLP, Breitburn Energy Partners L.P. (NASDAQ: BBEP), pays $1.88 per year and yields 9.60%. The consensus price target for BBEP is $22.
Income and yield investors should consider MLPs for solid income. However, it's important to note that while Bank of America Corp. has highlighted three top MLP names for investors, the specific names were not mentioned in the available text.
Credit Suisse believes that tax fears will weigh less on MLPs with comprehensive tax reform likely off the table. This, along with the attractive yield and potential for growth, makes MLPs an appealing option for investors seeking income-generating opportunities in the current market climate.
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