High dividends + insider buying = opportunity
When I hear about stocks with 9%+ dividend yields that are being bought by corporate insiders I pay attention. In this case it’s not stocks but Master Limited Partnerships (MLPs) (which pay distributions – not dividends) that are the subject of a short (2:56) interview (see below) with insider expert Jonathan Moreland, author of the InsiderInsights newsletter.
Moreland mentions two names specifically: Enterprise Products Partners (EPD: 38.13 -0.83%, yld: 5.87%) and Kinder Morgan Management (KMR: 60.97 -0.78%, yld: N/A%)).* He notes that such midstream MLPs (which act as links between energy producers and energy end users) are not directly affected by the price of energy as they profit from the throughput of the volume of oil and gas in their pipelines:
I currently own EPD, as well as several other MLPs, and it’s been reassuring to see most continuing to raise their distributions even in the midst of this financial crisis. While they’re certainly not immune to recessions or bear markets, MLPs seem to have held up very well during the latest market sell-off.
It’s also important to note that MLPs are tax-advantaged investments and require unitholders (the equivalent of stock shareholders) to file a K-1 form with the IRS each year. Surprisingly, many investors ignore MLPs because of this relatively minor inconvenience.
For more on MLPs, Investopedia has an excellent article – “Discover Master Limited Partnerships” – that shows how owning MLPs can help you save on your tax bill. There’s also a good Primer on Master Limited Partnerships available from Standard & Poors.
* Note: Kinder Morgan Management is actually not an MLP, and is treated like a regular stock. It does, however, pay its dividend in the form of shares (like an automatic Dividend ReInvestment Plan (DRIP)) and theoretically trades in tandem with Kinder Morgan Energy Partners (KMP: 68.66 -0.20%, yld: 6.19%), the MLP that it controls and manages.
