High current yields and growing dividends are the cure for the directionless market. And if we are in for a “lost decade” from the stock market, yield plus growing dividends is one strategy that will still produce positive total returns. The strategy works in any market—bull, bear, or stagnant.
Let me show you.
Over the last few years, master limited partnerships (MLPs) focused on growing free cash flow, providing a higher level of coverage for dividend payments. Starting in around 2017, these companies spent their time building cash flow with little to no dividend growth.
MLPs operate in the energy midstream sector. These companies own and manage assets such as pipelines, processing plants, and terminals. MLP revenues come from long-term, fee-based contracts. The midstream sector generates much more stable revenue than upstream drilling companies and downstream refiners.
Unique among midstream companies is the use of the MLP structure. Investors are technically limited partners instead of shareholders. There are some tax implications to MLP ownership that I will touch on below.
But first, let’s talk about cash flow for the MLP sector. A recent VettaFi article reported that MLP sector dividend coverage increased from 1.4 times in 2018 to…
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