Master limited partnerships (MLPs) historically have generated multiple benefits to investors including attractive yields, solid total returns and diversification from traditional asset classes.
New York-based Yorkville Capital Management gives some interesting insights into the value of the partnerships’ distribution increases in a recent study.
“The takeaway for advisors is that distribution growth represents the most productive way to evaluate the MLP asset class and underpins the investment thesis for MLP investing,” said Darren Schuringa, managing partner at Yorkville Capital.
Yorkville points to three elements in MLPs’ total return: current income, growth of income and price appreciation.
Distributions influence all three factors, and provide several primary benefits, according to the report: (1) a hedge against inflation — preserving the purchasing power of the investment; (2) protection against rising interest rates — capital preservation; and (3) powers price appreciation — growing income streams increase the principal value of the investment.”
Looking at its universe of listed MLPs, Yorkville identifies and ranks the partnerships that showed the “highest quality distribution growth” from the first quarter of 2008 through the fourth quarter of 2013.