One Sector That Has Suffered But Should Be Insulated From Declining Oil Prices [JPMorgan Chase Capital XVI JP Morgan Alerian MLP ETN(NYSEARCA:AMJ), Alerian MLP(NYSEARCA:AMLP)]

investors flock to their stable dividends. Since 2013, the correlation between West Texas Intermediate Crude oil and the Alerian MLP(NYSEARCA:AMLP) has averaged 25%. This means that the returns of crude oil moved in tandem with the returns of the MLP index only 25% of the time.

The Alerian MLP Index is the leading gauge of large and mid-cap energy master limited partnerships. The weighted index includes 50 prominent companies and captures approximately 75% of available market capitalization.

The risk to investors is the potential for declining oil production. New oil and gas permits declined by nearly 40% in November, as prices tumbled lower.

One of the biggest differences between MLPs and stocks is the way they are taxed. An MLP is a partnership as opposed to a corporation and not a separate entity for tax purposes. Since MLPs pass through entities, the tax is paid at the partnership level, not at the corporate level. Additionally, deductions are paid at the limited-partner level which makes the tax calculation somewhat difficult. To avoid this type of tax burden you can invest in an MLP ETF such as the Alerian MLP or the JPMorgan Chase Capital XVI JP Morgan Alerian MLP ETN(NYSEARCA:AMJ). These ETFs have a 6.4% and 4.9% dividend yield, respectively.

by David Becker

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.

Pages: 1 2

Leave a Reply

Your email address will not be published. Required fields are marked *