“The AMZI yield spread widened 5 basis points to 621 basis points as the yield moved down 2 basis points, but Treasury yields dropped by 7 basis points. While there is clearly less upside after the strong upward move over the past 11 weeks, we believe the AMZI’s above average yield of 7.9% and yield spread of 621 basis points create a positive skew in the risk/reward profile. These numbers compare favorably with the average yield of 6.3% and average spread of 394 basis points over the past five years, plus the long-term median yield of 7.0% and median spread of 304 basis points based on data since 1996,” according to a D.A. Davidson note posted by Amey Stone of Barron’s.
With the markets flooded with oil and prices still depressed, basic economic theory suggests that consumption could rise to capitalize on the cheap crude. With higher consumption, MLP tollkeepers could profit off the increased transportation or storage of energy.
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To qualify as an MLP, the companies pass through at least 90% of their income to investors, making the assets an attractive yield-generating investment.
MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
For more news on MLPs, visit our MLP category.