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.
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%.
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