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Encore: 11% Yield? Sounds Great, But…

File this under “D,” for “Desperate for Yield”: The Wall Street Journal’s Telis Demos and Tom Lauricella write today about the growing popularity of higher-interest, higher-risk MLPs—master limited partnerships that pay investors income from the revenue streams they generate, usually from energy businesses.

MLPs can be wildly volatile, and often create tax-filing headaches for investors. But they’ve become a hot item with retirees and other income seekers as yields have plummeted on more familiar vehicles like Treasurys and CDs. The WSJ points out that the market capitalization of the MLP sector has grown more than fivefold since 2005, to more than $350 billion, according to Barclays PLC. And prospects for savers remain glum following Fed Chairman Ben Bernanke’s announcement last week that the U.S. central bank plans to keep interest rates low forever—or at least into 2015.

Still, these new MLPs, which pay upwards of 11%, don’t exactly sound like widows-and-orphans material, as described by the Journal:

  • “MLPs that are considered the safest are backed by a steady revenue stream—say, fees for transporting oil or gas through a pipeline—and are secured by long-term contracts. This new breed of MLP are backed by less-familiar revenue streams, such as refinery income or payments for sand used in the process of ‘fracking.’ Some promise a minimum payout but others don’t—and warn they could pay zero income in some quarters.”


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.