Investing

More MLP Secondary Offerings Coming Soon, Dividend Pickers on Sale

The world of master limited partnerships (MLPs) has thrived under the era of low interest rates and high energy prices and high drilling. Income investors have collected high payouts, some as income and some as a return of capital for tax purposes. In recent weeks we have seen investors back off at least a bit from MLPs now that volatility has been seen in the market and as interest rates have risen over 1 full percentage point on the 10-year Treasury note in only about two months. Now MLP investors better get ready to see another wave of secondary offerings from many of the MLPs.

Kayne Anderson MLP Investment Co. (NYSE: KYN) priced a public offering of 6.2 million shares common stock at a price of $36.00 per share for the closed-end mutual fund. Net proceeds from the offering are $214.3 million and the fund stated that the proceeds would be used to make additional portfolio investments and for general corporate purposes. Kayne Anderson is astute when it comes to investing in MLPs, and they have a solid idea of when MLPs are going to raise more capital.

What investors need to know is that when Kayne Anderson is raising capital for its closed-end fund it has coincided with a time when many MLPs have decided to raise additional capital. Just last month the fund raised its second quarter payout by almost 3% to $0.58 per quarter, which generates a “yield equivalent” of about 6.4%. Due to leverage, the “KYN” had $5.727 billion in total investments but its net assets after deducting liabilities was $3.189 billion.

We would note that the ETF (ETN) that follows the sector now has a fixed number of units in the JPMorgan Alerian MLP Index ETN (NYSEMKT: AMJ), which means that it can trade with slight variations to its net asset value at any given time. Its shares (units actually) are down 1% at $47.32 against a 52-week range of $37.10 to $49.31. Its rival ETF is the ALPS Alerian MLP ETF (NYSEMKT: AMLP) and is up one-cent at $$17.99 against a 52-week range of $15.42 to $18.15. Then there is also the “junior-MLP ETF” via the Global X Junior MLP ETF (NYSE: MLPJ) which is up 4-cents at $15.90 versus a post-debut range earlier this year of $15.09 to $16.37.

After pricing at the $36.00 level, Kayne Anderson MLP Investment Company is trading at $36.01 and its 52-week range is $27.25 to $39.68.

There are two other points of interest in MLPs we have run, although we have much more extensive coverage than just this sector. In recent weeks and months we have highlighted the Merrill Lynch MLP picks with higher payouts. Credit Suisse also defended the high-quality yield MLPs as well recently. One last read that you have to always consider any time the tax and oil companies debate arises: if MLPs lose their tax advantages.

Investors have been there to buy up MLPs each and every time these have raised capital. Wealthy individuals tend to be the main holders, as well as trusts and fiduciaries on behalf of other investors. If more secondary offerings are coming down the pipe then there could be a soft patch in these prices. So far investors have always done well buying into these secondaries and holding on.

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