As bad news goes, this isn’t a big dose of bad news, but it should be a reminder to investors looking for extra yield in today’s ultra-low yield environment that higher yields always come with higher risk.
ONEOK Partners (OKS) is one of my favorites for getting a good deal more yield with only slightly more risk. The master limited partnership pays a yield of 5.96% versus the 2.34% yield on the 10-year Treasury.
But “only slightly more” doesn’t mean “no more.”
On September 30, ONEOK Partners announced that it would record 2010 net income of $450 million to $470 million instead of the previously projected net income of $450 million to $490 million. The change, the partnership said, was a result of higher earnings in the natural gas pipeline segment of its business and lower earnings in the natural gas gathering and processing segment.
The critical number, since ONEOK Partners is a master limited partnership that passes along the bulk of its earnings tax-free to investors, is the 2010 distributable cash flow. That, the partnership said, would be an estimated $570 million to $590 million instead of the previous range of $580 million to $620 million.
The drop in distributable cash flow from earlier estimates isn’t going to lead to any slashing of the cash paid to investors. Master limited partnerships have the ability to keep distributions steady for some time even if cash flow hits a bump. But it does mean that the distribution to investors, which has grown by more than 6% a year over the last five years, isn’t going up much this year. The company estimates that the distribution to unit holders (since this is a master limited partnership investors own units instead of shares) will increase by just a penny in 2010.
I don’t think this is any reason to sell. These shares are in my Dividend Income portfolio on JubakPicks.com (https://jubakpicks.com/jubak-dividend-income-portfolio/ ) and I’m going to keep them in that portfolio. It’s not easy finding a near 6% yield in this market with “only slightly more risk.”
Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.
bsorge,
I live in florida also. We called, or emailed a few states and was uniformaly told to file for any any income or loss. (some state are smart enough to have a $500 minimum state income threshold and that helps).
The only state I owed was California, $1, on $28 of income, and I wasn’t sure in April so I sent a check for $2 when I filed for the extension. Still waiting for my $1 back, Arnold!!
According to each states websiite, most enforcement is done in the mode of “failure to file results in (10-30) % penalty of the amount owed” so its not a monetary issue. But one state (and sorry, I forget which one), has a penalty of $5 a month….
By the way I would like to find a tax guy who i could trust to do my K-1 taxes so I wouldn’t have to sell these babies! Can you tell me who you are using?
Thanks
Phil
natural gas not for me any time soon. There is plenty on market and more coming. Far as div on OKS I paid taxes on them, wasn’t waiting for those papers.
Yclept
have u ck. out CEL, similar to PTNR, Israel co. in comm. with a larger yield
Ticker Last Beta Yield
ANH 7.06 0.29 13.03
NLY 17.84 0.37 15.25
MFA 7.92 0.42 11.36
NRP 26.84 0.68 8.05
PTNR 18.99 0.69 10.32
CIM 4.09 n/a 17.6
I’d take any of these over OKS; currently holding a bit of CIM, just as a place to get some return on what otherwise would be cash.
oooops, meant MMP not MMC.
Contrary to all the professional advice, I do own MLPs in my Roth but as a small fry investor have not been hit by the UBTI. My distributions from OKS, MMC, etc, are still under the $1,000 threshold.
The IRS has yet to find fault or audit.
i don’t agonize about filing in every state for a couple of bucks. its not worth my time or that of the particular state. I own MLPs in taxable accounts, the UBTI issues are a bit more onerous in an IRA. Every MLP i own results in ordinary losses and distributions which reduce basis. it is a little bit of a pain to track basis, but filing in the other states? forgetaboutit
BTW, i’m not giving tax advice but i’ve been a CPA for over 25 yrs
Suppose you don’t file in another state for a gain or loss of $2; do they extradite you for prosecution?
Another thing – most of the proceeds are in the form of “return of capital”, not loss or gain, right?
Phillip E.
I own more then a dozen MLP’s and none in my IRA.
Olive in Florida and my accountant has never filed in
Individual states for these MLP’s. Even the tax software does not prod you to do this. Are you sure this is correct???
If you use turbotax I think they have an investor relations package to autofill some or all of the info based on your holdings.
Marcoiks is correct.
Because I owned OKE MLP I had to file a state return in th following states (losses or income requireing filing in most states)
NE, ND, MT, LA, KS, IN, CO.
For all the MLP or LLP I owned it required a total of 13 filings. mostly for 1 or 2 dollars of income or a loss that was allocaated to each state.
I saw nothing on the state websites (but I wasn’t looking that hard) that stated holding these MLP in IRA excused you from filing.
Its too late for 2010, but I am selling these before Dec 31 so 2012 will be a better filing experience.
Jim,
I understand personal responsibility. However I think that since this website is geared towards “rookie” investors, you should remind people about the tedious process involved in filing income tax in all (or nearly all states) that LPs do business in.
Would anyone else know IRAs deal with partnerships income?