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🌟A NEW Portfolio Stock!
Published about 2 years ago • 4 min read
Presented By: The Early Bird from MarketBeat
Official Affiliate Partner: The Early Bird from MarketBeat
The Mistake
I used to own 250 shares in Energy Products Partners (EPD) and held them in my ROTH and Self-Directed IRA accounts, thinking it was smart.
However, it turns out that EPD was already a tax-advantaged investment, making it unnecessary to hold in tax-free accounts like a Roth. This was a valuable lesson in understanding the tax implications of my investments.
The Realization
During a recent YouTube LiveStream, I learned that holding EPD in a ROTH or IRA is not a good idea. This is due to the unique corporate structure of Master Limited Partnerships (MLPs), which offer tax-deferred benefits.
MLPs also issue a K-1 form, a tax document showing the income, losses, and dividends you earned from certain investments, like partnerships, which must be reported on your taxes.
It's worth noting that some investors find K-1 forms a hassle because they can be complicated and typically arrive in February or March, potentially delaying tax filing.
This is a factor to consider when evaluating investments that issue K-1 forms, and it's important to be cautious about potential delays.
I realized that EPD needed to be removed from my tax-advantaged accounts and maybe invest in something that didn't issue a K-1.
The Solution
After looking around, I found the Global X MLP & Energy Infrastructure ETF (MLPX).
This ETF is a basket of companies that move, store, and process oil and gas.
Unlike EPD, MLPX doesn't issue a K-1 form, so it's better suited for my ROTH and IRA accounts.
MLPX is also spread out across 24 companies that own pipelines and storage tanks (including EPD, which accounts for 4.41% of net assets), which helps lower individual company risk.
MLPX Holdings
MLPX also has a modest expense ratio of 0.46%, which is the yearly fee you pay to a mutual fund or ETF for managing your money; for example, if you invest $1,000 in MLPX, you’ll pay $4.60 a year.
This is an income investment with a yield of 4.87%. Interestingly, it has outperformed EPD on a 10-year total return basis by 10%!
SekingAlpha.com total return chart
I love that these companies make money based on how much oil and gas they move, not the oil price. This makes them more steady and less affected by price changes.
The world is hungry for oil and gas, and the US is the largest producer. OPEC and Russia have been cutting their output, so the US can step up and fill those demand gaps.
Fun fact: Energy companies find and produce oil and gas, while utility companies deliver electricity and gas to homes.
So don't get caught calling a utility company like Duke Energy (DUK) an Energy company!!😆
The Takeaway
Switching from EPD to MLPX was a good move for me.
It made my taxes easier and gave me a more diversified investment in "midstream" energy.
If you want to invest in energy without the K-1 form hassle, consider looking at MLPX.
Your Turn
Do you invest in MLPs like EPD? If so, where do you hold them? Hit REPLY and let me know your thoughts!
😁THANK YOU to everyone who responded to the last newsletter!!
🤑Rick Stambaugh from Orange Mountain Financial brings you ‘Grow Retirement Income.' He’s a seasoned pro with over 30 years in trading and a passion for guiding folks to a prosperous retirement.
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Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
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