Every now and then, I like to write about investing.  I don’t generally like stocks because, without the proper research, you’re taking a flier on a paper asset that you know nothing about.  I prefer investing in real, tangible items, like real estate and businesses. 

One item I recently read about is investing in pipeline partnerships.

What is a ”pipeline”?

A pipeline is a basically a metal tube under the ground that shuttles natural gas around the U.S.  In this insightful Forbes article, it states that, every day, 280,000 miles of pipelines shuttle 63 billion cubic feet of natural gas around the country.

OK, so what does my money have to do with buried steel?

A lot.  About 25% of those 280,000 miles of pipelines are held as tax-advantaged vehicles called master limited partnerships, or “MLPs.”  These MLPs are public and exchange-listed and, thus, trade like stocks.  The dirty little secret is that, since they are partnerships, they pass on earnings and depreciation to investors.  That equates to passive income.

What makes MLPs advantageous over other investments?

MLPs are very advantageous because (1) they produce constant passive income; and (2) that income will most certainly increase in the near future. 

The income streams from these pipelines remain constant whether energy prices go up or down.  Pipelines make money per pound of gas shipped, not per dollar of product.  So, no matter what the energy market looks like, these pipelines will put money in your pocket.

In addition, the U.S. is going to sink another $100 billion into its natural gas infrastructure over the next decade.  This translates into 4,000+ miles of new pipeline in 2008, and more beyond that.  More pipelines = more pounds of gas shipped = more money for you.

So how do I invest in these MLPs?

Investing directly in an MLP can be quite complicated.  Although they’re taxed less than other investments, filing and paying those taxes can be very complex.  However, there exists a much simpler method for investing in MLPs: own shares in one of two exhange-traded funds: Kinder Morgan or Enbridge. 

These funds trade and are taxed like traditional exchange-traded funds.  Check out the table below (from that Forbes article), which shows the consistent yields from MLPs, including the Enbridge fund:

Pipeline Partnerships graphic 1 

A 7.5% yield certainly isn’t sexy, but it’s almost a guaranteed return that will likely go up.          

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