Over the past three years, investors seeking differentiated returns have found recent initial public offerings (IPO) in the MLP space to be a fruitful hunting ground.
In 2011, two fledgling MLPs–Golar LNG Partners LP (NYSE: GMLP) and Tesoro Logistics LP (NYSE: TLLP)–cracked the list of that year’s top 10 performers. This number increased to six in 2012 and four in 2013. And thus far in 2014, IPOs that priced within the past 12 months have accounted for four of the top-performing MLPs.
Why do newly listed publicly traded partnerships tend to outperform?
MLPs often grow their distributions at an accelerated rate in their first two years as a publicly traded entity. These rising quarterly payouts, coupled with a raft of positive research reports from Wall Street analysts, tend to attract investors’ attention and drive the stock price higher.
At the same time, brokerage and financial websites often misreport recently listed MLPs’ yield until the firm has paid a full year’s worth of distributions. This quirk gives investors an opportunity to buy these stocks before the herd realizes how much the units yield.
In the past, investing in fledgling publicly traded partnerships has proved to be a winning proposition and an opportunity to find value. However, investors should be forewarned selectivity is critical to this strategy’s success.
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Elliott and Roger on Jan. 29, 2021
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