Trump Tax Cut Proposal Shines Light On MLPs

April 27, 2017

MLPs Over Corporations

"They're talking about giving MLPs the same 15% tax rate that corporations get, so that would actually expand the benefits of MLPs over corporations," Bresson said. "The devil is in the details, and we haven’t seen them."

MLPs have broadly underperformed the wider stock market over the past several years, largely due to the weakness in oil prices. The energy sector was pummeled as crude prices tumbled from above $100 per barrel in mid-2014 to below $30 early last year. They only recently stabilized at around $50 for U.S. oil.

"There has been a gradual improvement in MLPs now that energy prices have stabilized. It's still a decent place to invest even without the tax cut," said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois.

'Almost Immediate Bounce'

"There should be an almost immediate bounce [in price] once the proposal is solid. It should create more demand for MLP stock in general. But beyond an immediate bounce, it all goes back to how their businesses are doing,” he added.

Even with their above-average dividend yields, MLPs have lagged the S&P 500's total return in the last year by about 240 basis points.

MLP stocks—more specifically, units—are up as a group so far this year, with the $10 billion Alerian MLP ETF (AMLP) up 2.78%, though they have fallen 2.1% since Trump took office—even as his administration has been friendlier to sector projects like the Keystone XL Pipeline and the Dakota Access Pipeline.

Among the best performers in the sector this year are Shell Midstream Partners and Tallgrass Energy Partners, both up by more than 11% in 2017, while Plains All American Pipeline and Genesis Energy are down 5% and 9% year-to-date, respectively.

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