By Robert Ross via Iris.xyz

I don’t blame you.

The yields on energy master limited partnerships (MLPs) are very tempting.

If you’re not sure what these are, energy MLPs are companies that own the pipelines that transport oil and natural gas around the US. And they often pay huge dividend yields. The top five oil MLPs have an average dividend yield of 5.3%. That’s more than twice the S&P 500 dividend yield of 1.9%. I even found one oil MLP that is paying a crazy 18.4% dividend.

But in The Weekly Profit, I’m on the lookout for safe income opportunities. And while the MLP yields are generous, many of them are very unsafe. Here’s why.

MLPs Borrow Money to Pay Dividends

Of those top five oil MLPs I mentioned, the average payout ratio is 104%. The payout ratio is the percentage of net income a firm pays to its shareholders as dividends. So, if a company has earnings per share of $4 and pays $2 in dividends, it has a payout ratio of 50%.

Click here to read more on Iris.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.