as part of our
The world still has a growing thirst for oil amid the continued
worries of an economic slowdown in both Europe and Asia.
The oil cartel OPEC earlier this month raised its daily
consumption estimate for 2012 and also upped its global oil use
estimates for next year.
With the increased global demand comes an increased need to
store oil and move oil from place to place through pipelines, says
Andy Fletcher of Fletcher Wealth Management, the firm that manages
the Oil and Gas MLPs investment model at Covestor.
MLPs are unique securities focused on the oil industry that have
the tax benefits of a limited partnership. They are required to pay
out a large portion of their earnings as dividends in order to
receive that special tax treatment. As a result, they typically
offer more than double the yield of a 10-year Treasury.
Fletcher says that a major trend among the oil companies this
year is to divest their midstream assets to focus on their core
businesses. That is creating growth opportunities for some oil MLPs
including Buckeye Partners (
); an investment that he added to his Covestor model in early
Buckeye's recent acquisitions have added terminals and storage
capacity for crude oil and other refined products to its asset
"Based on the locations of these assets, and the terminals
already being operational, as opposed to needing to be built, we
see them being accretive in the event of increased demand,"
According to Fletcher, Buckeye has several advantages to finding
cash to fuel its growth. First, there are stable cash flows from
its pipeline business, which in some areas have regulated annual
rate increases, providing an inflation hedge.
Second, the company's MLP status allows it to pass income and
expenses through to its limited partners. This essentially negates
taxation at the corporate level, freeing up cash for operations and
Finally, incentive distribution payouts were removed when it
merged with its general partner in 2010, decreasing the cost of
The company's dividend distribution is now yielding 8.3%, a rate
above its 5-year average of 7.3%. It has traded as high as $68.45
and as low as $44.55 over the last 12 months and is now at the
lower end of that range, priced below
as of Sept. 19.
If you would like to learn more about MLP-focused investments or
other yield-producing investment options, call Covestor at
866-825-3005 ext. 703. We are happy to provide more information and
help you decide if a yield-focused investment strategy might be
right for you.
Certain of the information contained in this presentation is
based upon forward-looking statements, information and opinions,
including descriptions of anticipated market changes and
expectations of future activity. We believe that such statements,
information, and opinions are based upon reasonable estimates and
assumptions. However, forward-looking statements, information and
opinions are inherently uncertain and actual events or results
may differ materially from those reflected in the forward-looking
statements. Therefore, undue reliance should not be placed on
such forward-looking statements, information and opinions.
The investment discussed is held in client accounts as of
September 20, 2012. This investment may or may not be currently
held in client accounts. The reader should not assume that any
investment identified was or will be profitable or that any
investment recommendations or that investment decisions we make
in the future will be profitable.
Covestor Ltd. is a registered investment advisor. Covestor
licenses investment strategies from its Model Managers to
establish investment models. The commentary here is provided as
general and impersonal information and should not be construed as
recommendations or advice. Information from Model Managers and
third-party sources deemed to be reliable but not guaranteed.
Past performance is no guarantee of future results. Transaction
histories for Covestor models available upon request. Additional
important disclosures available at
http://site.covestor.com/help/disclosures. For information about
Covestor and its services, go to http://covestor.com or contact
Covestor Client Services at (866) 825-3005, x703.