OKS is master limited partnership. That means distributes most of its available cash flow (typically about 80%) to investors. That means the partnership doesn’t have much in the way of retained earnings for investment in new projects so it has to raise capital to expand in the debt markets. Fears the the debt markets weren’t open to this kind of funding and that interest rates wee headed up soon have weighted on MLPO prices. MLPs carry such high relative dividends because they aren’t growth stocks (since they have to borrow money to add new pipelines and such) so they don’t trade with a growth stock P/E ratio. Institutional investors can’t buy them in most cases (by law) and many individuals don’t buy them because either they think the accounting/tax book keeping is too complicated (it’s not) or that you can’t hold these in an IRA or other tax sheltered account. Actually you can, without any tax complications, as long as the annual income you receive from all the MLPs you own is less than $1000 a year. It is is more, some part of that income may be considerd as unrelated taxable business income and be subject to taxs at the corporate tax rate. In most cases even then the tax isn’t significant but you can see why these are considered complicated by many investors and why they don’t own them. And the fewer owners, the lower the price and the better the dividend yield.

Jim, if you do an update to OKS would you mind explaining this? Is this stock low because of its high debt (which still gives me a bit of pause), because the ownership structure tends to minimize potential capital gains (like a preferred share), or is OKS simply massively undervalued, when looking at the dividend?

I have looked into this, but really can’t say I know for sure – there is a sister company to OKS (I forget the ticker at this moment) which pays a much lower dividend. Maybe that one is the cap gains play and OKS is the dividend play?

Eh, there’s always something one must know more about…