Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies, which show that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks. One particular area has garnered interest over the years are Master Limited Partnerships. Investors are drawn to MLPs for their high yields and tax deferment. MLPs don't pay taxes at the corporate level, so the tax burden then gets passed to the investor. Without getting into too much detail, because of structure of the partnerships and the distributions, investors are entitled to a serious tax deferral. Investors should fully understand what they are in for before buying MLPs, but for those willing to do the research it can be very profitable.
The highest yields can be very tantalizing. As long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business and driven down its stock price. However, certain types of companies such as MLPs have to pay out most of their cash flow as distributions, so their yields will be higher than "normal." Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.
Source: Motley Fool
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