A Proud to Own Company Focused on Saving Lives

A Proud to Own Company Focused on Saving Lives

Proud to Own Series

pto logoEach Wednesday, we highlight a core portfolio holding within our Faith-Based 100 Index,  and show why it is a part of our “Proud to Own” universe.

As a reminder, for the company to be included in our “proud to own” universe, it must meet three criteria:

1.  It must not violate your faith and values. Some of the types of companies we can avoid include those involved in the abortion industry, those producing explicit entertainment and pornography, those conducting embryonic stem cell and fetal tissue research, companies funding and lobbying for homosexuality, those involved in vices like alcohol, tobacco and gambling and companies that are abusing the environment.

2. It should be a company that complements your faith and values. This involves finding companies: Helping the poor and defenseless; Protecting the sanctity of human life; Producing morally sound entertainment; Finding cures for life threatening diseases; and Improving the society we live in…

3. It should be a company with strong profit potential. This involves finding companies in solid financial condition that have strong profit potential and/or provide strong cash flows via dividends. We use a five-point inspection to evaluate each investment we are considering. We analyze a company’s earnings potential, price momentum, risk, financial health, and its current valuation. Our goal is to find quality companies that stay true to your values AND are profitable! This is not an either /or scenario but rather a winning combination.

This Week’s Highlighted Company

We look for companies changing the world around us.  This includes companies creating life changing medicine. That’s where this week’s “proud to own” company comes into play…

mdvnMedivation, Inc. (NASDAQ: MDVN) is a biopharmaceutical company focused on the rapid development of novel therapies to treat serious diseases for which there are limited treatment options. Medivation aims to transform the treatment of these diseases and offer hope to critically ill patients and their families.

Medivation’s prostate cancer drug Xtandi (enzalutimide) was discovered through university research. It was then brought through clinical trials. once these trials showed promise, Medivation brought the drug to the market through its partnership with Astellas Pharma.

Enzalutimide targets the androgen receptors in cancer cells to slow the development of certain types of prostate cancers.  This has improvied and lengthened the quality of life for its patients.

Saving LivesMedivation blends a unique business model with an expert team to bring promising medical technologies from the lab bench to the patient bedside.

Through its extensive network of contacts with top-flight scientists and research institutions, it acquires early-development stage pharmaceuticals and medical devices that have promising clinical, intellectual property and commercial prospects. Using the extensive development experience and expertise of its core team, supplemented by expert consultants in relevant functions, it identifies and executes the strategic pathway that will allow the most rapid, efficient and effective development.

​Its business strategy is straightforward:

1.  Build a portfolio of four to six product candidates. It focuses on those that have the potential to be in clinical development within 12 to 18 months after acquisition.

2. Develop those product candidates as rapidly and efficiently as possible.

3. It considers partnering or selling successful programs to large pharmaceutical, biotechnology or medical device companies for late-stage clinical studies and commercialization.

Founded in 2004, Medivation was named one of the top places to work in the San Francsico/Bay Area in both 2013 and 2014 . Here is a great quote on why it is a great place to work:

“The fact that our own employees have once again placed Medivation among the best places to work in the vibrant and diverse San Francisco business community speaks volumes to the culture we’ve built here and the passion we all feel for our work,” said David Hung, M.D., founder, president and chief executive officer at Medivation. “I am proud to say that this spirit is evident in our daily interactions as colleagues, the game-changing success we’ve achieved to date, and the evident determination of everyone on the team to pursue the significant opportunities that still lie ahead. I can’t think of a better, more exciting place to work and I am deeply gratified that our employees feel the same way.” 

Medivation Inc. (NASDQ: MDVN) is a company you can be “proud to own”.

 

Investing in Your Employees Can Lead to Big Profits

Investing in Your Employees Can Lead to Big Profits

Proud to Own Series

pto logoEach Wednesday, we highlight a core portfolio holding within our Faith-Based 100 Index,  and show why it is a part of our “Proud to Own” universe.

As a reminder, for the company to be included in our “proud to own” universe, it must meet three criteria:

1.  It must not violate your faith and values. Some of the types of companies we can avoid include those involved in the abortion industry, those producing explicit entertainment and pornography, those conducting embryonic stem cell and fetal tissue research, companies funding and lobbying for homosexuality, those involved in vices like alcohol, tobacco and gambling and companies that are abusing the environment.

2. It should be a company that complements your faith and values. This involves finding companies: Helping the poor and defenseless; Protecting the sanctity of human life; Producing morally sound entertainment; Finding cures for life threatening diseases; and Improving the society we live in…

3. It should be a company with strong profit potential. This involves finding companies in solid financial condition that have strong profit potential and/or provide strong cash flows via dividends. We use a five-point inspection to evaluate each investment we are considering. We analyze a company’s earnings potential, price momentum, risk, financial health, and its current valuation. Our goal is to find quality companies that stay true to your values AND are profitable! This is not an either /or scenario but rather a winning combination.

This Week’s Highlighted Company

 

costcoThis week our selection is Costco Wholesale (NASDAQ: COST). Costco Wholesale Corp. operates membership warehouses based on the concept that offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. This rapid inventory turnover enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets.

Employees are a company’s best asset

We look for companies that treat their employees with respect and dignity. Companies that find themselvesUntitled design-3on the worst place to work lists don’t make it into our portfolios. Instead we look for companies that can boast being one of the best places to work.

As we see in the God’s Word: ““So I will come to put you on trial. I will be quick to testify against sorcerers, adulterers and perjurers, against those who defraud laborers of their wages . . .” says the Lord Almighty. (Malachi 3:5)

God sees it is important to treat workers fair and just.  Costco is one of those types of companies.

Walmart is the largest U.S. retailer while Costco is second-largest. Both compete head on selling a wide variety of low-priced items such as food, home goods, apparel, and toys to budget conscious customers. However, they have much different business strategies, especially when it comes to employee compensation. Costco pays its employees much better than Wal-mart. Here are a few examples:

  • Not too long ago, a BusinessWeek article reported that the average full-time U.S. workers earned an average of $12.67 an hour working at Wal-Mart. However, Walmart aggressively controls its labor costs by hiring a large percentage of part-time workers. After factoring in full and part time workers, IBIS World, an independent market research group, concluded that the average hourly wage of a Walmart sales associate is just $8.81.
  • Costco, on the other hand, pays its hourly workers approximately $21.00 an hour, not including overtime, and not including the typical $5,000 annual bonus received by employees who have been with the company for five years or longer.
  • Wal-Mart estimates that “more than half” of its employees receive health care benefits. However many of its part-time workers receive little to no benefits.
  • The Costco benefit package includes health, vision, dental, and 401(k) programs for both full- and part-time workers. 88% of employees are eligible. Full-time new hires must wait 90 days before becoming eligible while part-time workers must wait 180 days. 98% of eligible employees are enrolled in the plan and employees pay less than 10% of the overall cost of their health plan.
  • Back when the economy is heading in a recession in 2008-9, while other retailers were slashing jobs and benefits, Costco stepped up big time.  Even though Costco saw declines in same-store sales in 2009, it chose to help its employees. While the economy was bad, it figured out how to give its employees more and not less.  Costco approved a $1.50 an hour increase for hourly employees spread out over three years, which was unheard of during a recession!
  • It also belives in hiring from within. More than 70 percent of its warehouse managers began their careers working the register or on the floor.

For a good comparison of Wal-Mart vs. Costco, seeing the numbers, here’s how they really compare.

Has investing in its employees been profitable for Costco?  Here’s one chart that will answer that question:

cost chart

Since 2009, COST is up nearly 400%! 

Bottom Line:  Though Costco Wholesale (NASDAQ: COST) is far from perfect, it is a company worth considering for your portfolio.  It treats its employees and customers with dignity and respect.   Its actions of paying its employees a “living wage” speaks louder than words.  It focuses on keeping prices low, volumes high, and employees happy.  Costco is a company you can be “proud to own”.

 

DISCLAIMER: Faith-Based Investor’s Wall St. Renegade Monthly™ Newsletter is published by Faith-Based Investor, LLC, 1121 Park West Blvd. Suite B, #156 Mt. Pleasant SC 29466. Publisher/Founder: Jay Peroni, CFP®.

Current Subscription Rate: $199 per year, online subscriptions are available at www.wallstrenegade.com. ©2009-2015 by Faith-Based Investor, LLC. All Rights Reserved. Photocopying, reproduction, quotation, or redistribution of any kind is strictly prohibited without written permission from the publisher.

Wall St. Renegade Monthly™ Newsletter is strictly an informational publication and is not intended to provide individual, customized investment or trading advice to its subscribers. Although many of our analytical approaches are unique, they are based on publicly available data; and although analysts may visit specific sites, companies or countries to gain a more objective on-the ground perspective regarding specific investment opportunities, they do not seek or accept data that’s not available to the public. The money you allocate to speculative trading should be strictly the money you can afford to risk. While every effort is made to simulate the actual experience of subscribers, all performance figures must be considered hypothetical.

Is a Strong Dollar Good or Bad for Stocks?

Is a Strong Dollar Good or Bad for Stocks?

Can the U.S. Dollar Keep on Climbing?

If you have been following the U.S. dollar and its results you can see that  the dollar has been quite “strong”.  Take a look at the chart:

us dollar

The strong dollar can provide strong headwinds for stocks and commodities. However, a strong dollar doesn’t mean that stocks and the economy are doomed…

The U.S. Dollar Index has soared the past 8 months

Strong DollarFrom July 2014 to February 2015, the U.S. Dollar Index, which measures the dollar versus key foreign currencies (Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc) rose an astonishing 19.44%.

With the European Central Bank initiating its quantitative easing program on March 9th, the dollar hit a 12-year high against the euro.  Since then the U.S. Dollar has soared more than 3% and has the potential to climb much higher.

The Dollar Stopped Its Losing Streak

From 2001 to 2011, the dollar declined significantly as a result of the monetary policy that the Federal Reserve adopted in the Alan Greenspan and Ben Bernanke years. With U.S. interest rates plummeting to all-time lows in the late 2000s, the dollar finally became more attractive as a funding currency. Thus the demand for dollar-denominated debt increased and we have seen the Dollar Index quickly pick up steam.

So why has the dollar strengthened?

You have two main reasons why:

1.  The Fed tightened its monetary policies while other central banks have eased. This has increased our standing as a mightier currency.

2. The U.S. economy is much healthier versus those of many other nations who are facing recessions and economic slowdowns. As a result, the U.S. dollar gained on every other major currency in 2014. This is something we haven’t seen unfold since the 1980s.

There are two additional factors which could send the dollar even higher:

In the first quarter of 2015, private sector dollar-denominated debt hit $9 trillion globally.  Liabilities will eventually increase for the issuers of this debt which will then ramp up demand for dollars as issuers look to hedge its dollar exposure.

The account deficit has been slimming for the U.S. and as this deficit gets thinner, there will be fewer new dollars.  This could create a demand versus supply dilemma. As demand increases and supply decreases it could send the dollar much higher.

It could take several years to unwind $9 trillion worth of dollar-denominated debt.  If you also factor in interest hikes from the Fed that may be coming down the road, the demand for the dollar could increase even more.  This dollar bull may be in the early stages of a long-term rally.

If the dollar keeps rallying, how will this impact stocks & commodities?

If the dollar remains strong, this could have a negative impact on corporate earning especially for multinational corporations who do business in foreign countries and have to convert profits back to U.S. dollars.  Additionally, there could be lower demand for U.S. exports, as a stronger dollar makes exports more expensive for foreigners.

Companies that stand to do the best are U.S. companies who conduct the bulk of their business within America. Fixed-income investments based in U.S. dollars may also hold up better as well.

As the dollar continues to gain strength, it will reduce the appeal of gold, oil and other commodities that are sensitive to the dollar. Because most of these commodities are mainly traded in dollars, they face a real up hill battle.  Resource rich countries like Canada, Brazil and South Africa could also see trouble if the dollar continues to drive down commodity prices.

There is some good news in here though!  U.S. households will gain more purchasing power when the dollar strengthens and the price of imported goods fall.  This should lead to improved consumer spending, which will help American retailers and also could give the Fed  leadway to extend its accommodative monetary policy.

How can you invest in the dollar?

If you are invested in the U.S. equities markets, you already have exposure to the strong dollar. If you want more exposure to the dollar you can look at investment vehicles focused on dollar investing. One way to play the strong dollar:  The PowerShares DB US Dollar Bullish ETF (UUP). The Index is a rules-based index composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.

Bottom Line: No need to fear!

Even though the dollar is strong, stocks can still rally.  Charles Schwab  Research indicates the average annualized return for U.S. stocks when the dollar rises has been 12.8% since 1970.  With a strong dollar, bonds have returned 8.5% in the years since 1976.  A dollar rally means the U.S. economy is strong and that in itself can help encourage and sustain our current bull market.

 

5 Reasons to Invest in This Innovative Food Company

5 Reasons to Invest in This Innovative Food Company

Proud to Own Series

pto logoThis week, we are starting a brand-new “Proud to Own” Series.

Each Wednesday, we will bring you a new core portfolio holding and why it is a part of our “Proud to Own” universe.

As a reminder, for the company to be included in our “proud to own” universe, it must meet three criteria:

1.  It must not violate your faith and values. Some of the types of companies we can avoid include those involved in the abortion industry, those producing explicit entertainment and pornography, those conducting embryonic stem cell and fetal tissue research, companies funding and lobbying for homosexuality, those involved in vices like alcohol, tobacco and gambling and companies that are abusing the environment.

2. It should be a company that complements your faith and values. This involves finding companies: Helping the poor and defenseless; Protecting the sanctity of human life; Producing morally sound entertainment; Finding cures for life threatening diseases; and Improving the society we live in…

3. It should be a company with strong profit potential. This involves finding companies in solid financial condition that have strong profit potential and/or provide strong cash flows via dividends. We use a five-point inspection to evaluate each investment we are considering. We analyze a company’s earnings potential, price momentum, risk, financial health, and its current valuation. Our goal is to find quality companies that stay true to your values AND are profitable! This is not an either /or scenario but rather a winning combination.

This Week’s Highlighted Company

TEXT HEREThis week we focus on an innovative food company.

Think about all of the time you spend either preparing, cooking, or eating meals.  This probably consumes a significant portion of each day.  Whether you eat at home or on the run one company is disrupting the way we approach food.

For most people, this company is not a household name.  In fact, very few people know the company.  You probably will recognize some of its products and certainly its customers, but for the most part, this company is relatively unknown. Yet some of the greatest cooking innovations are taking place in this company’s product lineup.

The company leading the charge is  Middleby Corporation (NASDAQ: MIDD).   Of all the things a company can supply none is more important than trust.

midd This is evidenced at The Middleby Corporation with its  strong relationships with its customers, suppliers, shareholders and employees.

Trust is why it is the world leader in commercial cooking equipment. It is about innovation and improving the way we cook foods.  It disrupts the food industry with advanced cooking innovations that bring speed, energy savings and green benefits to commercial kitchens all over the world.

It may not be a household name, but its products are in one of every three restaurants around the world from Dunkin Donuts to Starbucks. Its food processing equipment is widely used by Costco Wholesale (NASDAQ: COST). And its customers have been with Middleby for decades. It’s because Middleby focuses on trust and quality.

Take a look at its impressive brand lineup:

Middleby Lineup

5 Reasons this Company has been Successful:

1. Great Leadership. Middleby’s CEO, Selim A. Bassoul, has transformed from a Lebanese, dyslexic boy who struggled in school into one of the greatest leaders of a publicly traded company.   With an ambitious vision of golden-brown toast in 30 seconds flat, steamed broccoli without water, and roasting a frozen turkey in a jaw-dropping 20 minutes, Selim has changed the world of food!  He is one of the longest serving CEOs of a US publicly traded company. His leadership has turned a struggling, unfocussed firm worth just $15 million in 2000 into a global powerhouse now worth over $6 Billion!  Selim is a game changing CEO who is a titan in the food industry.

2.  Hiring the right people!  Middleby invests in its employees.  It is unheard of to have over 3,000 employees and a 98% retention rate, but that is exactly what Middleby has. It is very selective when it comes to hiring, but once they find the right fit, its employees stick around.

3. It motivates its work force.  It believes in “3 degrees of separation” where no employee has no more than two managers levels above them. It also believes strongly in pay for performance. Its employees are better at what they do and able to trump the competition because of knowledge, experience, and longevity.

4.  It is disruptive!  It doesn’t wait around for its customers to tell it what it wants.  Yes, they listen to customer feedback, but it spends most of its time and energy looking for game changing features to save its customers time, improve the way they prepare and heat food, and reduce its customers’ expenses.

5. Focus on generating cash flow.  Middleby focuses on making sure it is always bring in more cash.  This basic principle helps it to remain lean and mean.  It can survive the ups and downs of the economic cycles and deliver impressive gains to its shareholders in good and bad times.

Now this company doesn’t offer flashy new products like the lastest and greatest new gadget from a high technology firm or a world changing scientific breakthrough that comes from an up and coming biotechnology firm.  Its products may seem boring from an outsider’s perspective, but not to its thousands of customers who rely on Middleby each and every day for how they prepare and cook food.

How has it performed?

Take a look at how it has done since 2009:

Midd stock

The company has had its ups and downs, but it has achieved a 35.8% annualized return over the past 15 years.

 

Bottom Line:  Middleby has the innovation, leadership, and the financial performance we look for in a “proud to own” company. That is why it is a part of our Contrarian Strategies Portfolio, which looks at innovative game changing companies.

 

Disclosure:  

INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.

Are the Markets Getting Frothy?

Are the Markets Getting Frothy?

Can the Markets Go Higher?

Espresso Shot

The Dow at 18,000

Nasdaq near 5,000

The S&P 500 above 2,000

Is there more upside?  Or is a major collapse brewing?

As I highlighted earlier this year.  I believe 2015 is going to be a volatile, challenging year for investors.  It is what I call a “stock picker’s market”. One where buy and hold is not the way to go.  You must choose your investments wisely!

Now is the time for a tactical approach!

charts

That is why I advocate a tactical asset allocation approach.  At Wall St. Renegade, we utilize an approach called “tactical asset management”. More about this approach can be found HERE.

Tactical asset management, in a nutshell, is about managing market risk through an active type of asset management that adjusts allocations across different asset classes and market sectors.

Our market indicator tells us when we are in a rising, falling or neutral market.  This indicator looks at both short and long-term trends, helping us to spot danger ahead.

Unlike many advisors or stock brokers who simply “buy and hold” and hope things work out for the best, we take an active approach where we can go long or short:

To be long, we simply buy positions and hold them until one of three things occurs:

  1. It hits our profit target and we lock in gains
  2. It hits our maximum loss price and we exit to minimize further losses
  3.  We find a better opportunity and we sell something for a better idea.

To be short, we simply buy investments that have the ability to go up while the markets or certain investments go down.

This allows us to make money in a up, down, or side ways market.  We can adjust as we spot trouble ahead.

You need tools for a bumpy road ahead! 
In our VIP Program, we have created tools to help you become a better investor!
1. Our Market Indicator helps you know when to be fully invested in the market and when to pull back.  We look at short and long term trends telling you when we spot danger.  We track key market metrics daily.
2. Our Market Cheat Sheet helps you know which stocks, sectors, countries, currencies, and commodities to consider.
3. Our Trade Idea of the Day helps you identify rising stocks that have much more upside potential.

Need help with your portfolio strategy?

We have 10 different portfolio strategies for your core portfolio and special situations:

For long-term investors, we have 5 core strategies:

  1. Dueling Duo Portfolio: Large cap stocks
  2. Contrarian Strategies Portfolio: Mid cap stocks
  3. Tomorrow’s Treasures: Small cap stocks
  4. Tiny Gems Portfolio: Micro cap stocks
  5. Foreign Profits: International stocks

For special situation investors, we have 5 strategies:

  1. All-Weather Portfolio: A balanced portfolio for more conservative investors
  2. Global Income Portfolio: An income-focused portfolio for those close to and in retirement.
  3. Genesis 12 Portfolio: Focused on Israeli stocks
  4. Natural Resources Portfolio: For investors looking for commodity exposure and inflation protection).
  5. Top 10 Stocks Portfolio: A concentrated, buy and hold strategy. Stocks are rebalanced each year.

Our VIP Program gives you access to all of these tools and resources!

 

My Favorite Strategy for a Challenging Market

One of my favorite strategies for a challenging market is our Natural Resources Portfolio (formerly called PACE).

This portfolio combines several asset classes and diversifies to help protect your portfolio from inflation.

Precious Metals:

We believe long-term that the dollar will continue to lose value and gold, silver, along with mining companies should benefit from this trend.

Agriculture:

As the global population continues to grow we believe land and agriculture will continue to see shortages. This will lead to higher food and land prices.

Commodities:

We believe the emerging markets will continue to expand and drive up commodity prices with their demand. As the dollar continues its long-term decline, this should also benefit steel, cooper, and other metals.

Energy:

We believe that world energy demand should continue to be strong over the next 3-5 years and having exposure to companies involved in exploration, servicing, and drilling should see healthy gains. We also want exposure to natural gas and oil.

World Dominators:

To provide a bit more stability, we look for companies dominating their industries, paying healthy dividends, and those that have global exposure. We like companies in stable industries with strong demand.

As you can see this is a diversified portfolio strategy. It is for investors looking to diversify away from the stock market and have a solid plan of attack for when inflation comes roaring back.

Learn more about our Natural Resources Portfolio Here

Learn more about our VIP Program Here

 

 

Best Places to Invest in Retirement

Best Places to Invest in Retirement

Interest Rates are Still at Rock Bottom Levels

TO INVEST IN RETIREMENTMany retirees find that their income streams are insufficient these days.  As a result, many look for additional ways to earn more income.   With rock bottom interest rates, investors are seeking out higher yielding investments. The federal funds rate is still near zero and the classic conservative retirement investments like money market funds and CDs are failing to keep up with inflation.

So where can you turn to get more income, especially if you are close to or in retirement?

  1. Real estate investment trusts (REITs):  This investment allows you to enter the commercial real estate sector without the hassles of property. They give you a fractional ownership share of a major-league real estate portfolio, with potential for dividend payments and excellent returns. A couple of examples of stocks worth considering in this category include Realty Income (NYSE: O) and Extra Space Storage (NYSE: EXR).
  2. Dividend stocks:  These types of companies stood out during the recession, as investors turned to them for cash flow. Commonly, they are issued by established corporations in essential industries. In this category, I look for companies paying at least a 2% dividend.  I like Taiwan Semiconductor (NYSE: TSM) and Dr. Pepper Snapple (NYSE: DPS) in this category.
  3. Utilities stocks: These often provide a hedge as they have the potential for nice dividends in good and bad market climates. Some of my favorites include Brookfied Infrasture (NYSE: BIP) and American Water Works (NYSE: AWK).
  4. Master Limited Partnerships (MLPs): Almost all MLPs are pipeline businesses making money from the processing or transport of oil, natural gas or coal. Some of my favorites in this category include Magellan Midstream Partners (NYSE: MMP) and Tallgrass Energy Partners (NYSE: TEP).
  5. Currencies: When the dollar is weak, funds investing in foreign currencies get a boost as most funds out there are dollar-denominated. With the dollar strong now, this is a place to consider as the dollar starts declining again.

You can invest in many of these asset classes not only via stocks, managed funds, and exchange-traded funds (ETFs). ETFs are nice, as they don’t cost an arm and a leg to enter. They are tax-efficient, and as they trade on exchanges during the market day and they also offer great liquidity and flexibility.

One of my favorite income investments are Master Limited Partnerships (MLPs). They’ve outperformed stocks for over a decade while offering attractive yields and typically less fluctuations than stocks. These investments often generate consistent, sizable dividends. Because they transport commodities like oil and natural gas rather than explore for them, they are theoretically less affected by ongoing volatility in commodity prices.

An MLP combines the tax structure of a limited partnership with the liquidity of a publicly traded security. An MLP pays out nearly all of its free cash flow to investors in the form of quarterly distributions. Most of these MLPs pay annual yields in excess of 2-3% making them an attractive investment option for many retirees.  MLPs also have big depreciation shields from capital expenditures and thus 80% of their distributions are characterized as tax-deferred return on capital.

There are some drawbacks to MLPs.  MLPs are exempt from corporate taxes, and the taxed portion of an MLP distribution is taxed as regular income. The tax-deferred part of the payout reduces your cost basis in MLP shares and it becomes taxable when the MLP shares are sold. Appreciation in MLP holdings are subject to corporate tax, and MLP investors will get K-1 forms each year instead of annual 1099s.  Consequently, MLPs can be problematic for investors with tax-deferred accounts. Expect intensive paperwork at tax time if you own MLP shares.

MLPs can be a perfect solution for income-focused investors who want to diversify their holdings. If you don’t want to purchase individual MLP holdings, you can also select exchange trade funds (ETFs) or mutual funds that invest in these types of investments.  If you are looking for more income and don’t want to add a lot of risk, MLPs may provide the perfect income solution.

Want more income ideas?

Check out our Global Income Portfolio Service. We help you find high yield opportunities in a low interest environment is quite the challenge.  Our low-risk investing approach focuses on safe, high dividend stocks that can weather any kind of storm that might come our way.