As the demand for energy increases and bank dividends disappear, energy master limited partnerships (MLPs) advance as an important investment concept, according to the CIO of Dividend Growth Advisors LLC.
“We know that the prices of energy (gas, oil, coal, etc.) go up and down quite a lot; but in energy MLPs, we have an investment that has strong investment fundamentals and high distributions, which tend to go up consistently,” Thomas W.L. Cameron said.
Energy MLPs, which transport, process and store oil and natural gas throughout the U.S., have high barriers to entry and strict government regulation, Cameron says, which reduces competition and outsourcing. And to adjust for costs and inflation, the U.S. government annually sets the rates charged by pipelines.
“The annual rate adjustment enables the MLPs to generate relatively stable and increasing distributable cash flow levels, which in turn provide for stable streams of payments to the partners,” Cameron said. “The increase of the capital base provides the potential for raising distributions to investors.”
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