How to spread the risk of energy investing for income
As the world continues to recover from the recession of 2008-09, those who depend on their investments for income have faced a challenge. Central banks in all of the major developed nations responded to the financial crisis and the resulting economic slowdown in a fairly conventional manner: they forced interest rates lower.
As a result, many people have been forced to rethink their traditional bond holdings and turn to non-traditional ways of generating income. The energy markets offer several ways of achieving that.
Master Limited Partnerships (MLPs), utility stocks, and stock in large, mature, dividend paying companies all offer a chance for those in need of income to “juice” returns from a traditional bond portfolio.
As with all things investing, diversification is paramount. An investment split between the following four suggestions would offer a combined yield of 4.275 percent — not spectacular, but significantly better than the 2.5 percent currently available from U.S. government’s 10-Year Notes, while spreading risk significantly.
MLP: Master Limited Partnerships are “pass through” entities. That is to say that the majority of their profit is passed through to investors rather than retained. They must, by definition, receive around 90 percent of their income from real estate, natural resources and commodities.
For individual companies, there is a large tax benefit from operating in this way, as profit is not taxed – rather, the distributions alone are taxable. For investors, too, this is a benefit, as it avoids double taxation, but there is a catch.
Utility: Local and regional power companies are a traditional source of regular income for more conservative investors, but recently, many such investors have found out that “defensive” stocks are not always safe.
Source: oilprice- How To Spread The Risk Of Energy Investing For Income
