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Rating the Master Limited Partnership IPOs of 2013

By Elliott H. Gue on Dec. 11, 2013

Energy-related master limited partnerships (MLP) have completed an unprecedented 18 initial public offerings (IPO) thus far in 2013, bringing the universe of publicly traded partnerships to an all-time high.

Although 2013 will go down as a record year for IPOs in the MLP space, the quality of these new offerings varies widely. Many of these names operate in familiar segments of the oil and gas industry, but their underlying assets leave a lot to be desired.

In the past, investing in fledgling publicly traded partnerships has proved to be a winning proposition and an opportunity to find value when the market bids stock prices up to frothy levels. However, investors should be forewarned selectivity is critical to this strategy’s success.

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.

We expect the pipeline of prospective publicly traded partnerships to remain robust, as companies–and investment banks–seek to take advantage of the market’s demand for securities that offer an above-average yield.

Although investors may gravitate to the elevated yields offered by these IPOs, you should consider the stability of the MLP’s distribution and the likelihood that the payout will grow over time. In this issue, we get caught up to date on the IPO class of 2013.

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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

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