Dividends4Life: Master limited partnerships and inflation

Master limited partnerships and inflation

Posted by D4L | Friday, January 07, 2011 | | 0 comments »

In an inflationary environment, what happens to these MLPs (master limited partnerships)? Obviously they rely heavily on borrowing and upon stock offerings for the purpose of raising money to make accretive acquisitions. It appears this would hinder their ability to continue to grow their dividends, in an environment where interest rates and thus dividend values are falling.

First of all, MLPs have basically broken any correlation with interest rates the past three years, and rather have been following economic growth like virtually every other equity. In other words, rising interest rates will not necessarily mean falling MLP equity prices. They certainly haven’t the last three months as Treasury yields have spiked and they’ve moved higher. Interestingly, the real doomsday scenario for MLPs is only possible after a prolonged period of not enough adversity. That’s a speculative building binge for new energy infrastructure (pipelines, etc.) that will be identifiable when MLP managements stop insisting on full to near-full contracting for any new projects.

Source: Investing Daily

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