Comments on: Sell Enbridge (ENB)

By: GLipsey

GLipsey — Fri, 02 Oct 2009 22:56:26 +0000

Edit to my 1 October 2009 post: Sorry, I forgot to state the main point. EEQ and KMR are each organized as a Corporation, not an MLP. They distribute dividends and return of capital, which get you a 1099 at tax time, not a K-1. They were formed to enable pension funds and IRA investors to invest in MLPs. Each of these two represent about 15% of the shares outstanding in their respective partnerships. They get the same distributions per share as EEP and KMP, but since their stock price tends to run lower they earn you a slightly higher effective yield.

By: GLipsey

GLipsey — Thu, 01 Oct 2009 20:04:40 +0000

MLPs in IRAs: Couple of choices for not having to deal with K-1 issues of “unrelated business taxable income.” EEQ is the Enbridge equivalent of KMR. Note that the effective yields for KMR and EEQ are higher than their respective EEP and KMP, reason most likely being that the dividend is paid in shares not cash. Also, closed end funds (you get a 1099 not a k-1) such as TYY and KYN focus on the midsteam MLPs. These “stocks” work in IRAs. The latter two are trading at a premium to NAV right now, but the yields are still high. Like all MLP oriented investments, their risk includes credit type risks because they must borrow to expand. This credit issue is one of the reasons they sold off so much in November. Hedge funds play here also because they can leverage these yields, so they will be volatile.

By: kingtrenchard

kingtrenchard — Thu, 01 Oct 2009 18:55:23 +0000

I confused ETP and ETE (the senior partner) in my last post. Please ignore the comparison.

By: kingtrenchard

kingtrenchard — Thu, 01 Oct 2009 18:37:22 +0000

ETP just priced a 6 million common unit offering at $41.27 per unit with an option for 900,000 more units. The existing units were just trading at around $27.66. I would interpret that as a strong market signal that somebody thinks the existing units are underpriced.

By: davcbr

davcbr — Thu, 01 Oct 2009 14:08:12 +0000

The deal with MLP’s in an IRA is that they can at times produce taxable income within an IRA. This is only if you have $1000 or more of “unrelated business taxable income”. From my web searches, it SEEMS that this is normally a very low % of the dividends you get; however, the longer you hold the partnership units, the larger this can become.
Ultimately, you can buy enough shares so that at, say, 10%, you will not produce $1000/year.
There is a lot of misinformation out there. If you do have more than $1000 in “unrelated business taxable income”, you only have to pay tax on that from within the IRA. This is doable, but you may want some hand-holding.