Even though oil prices are down, these investments still generate attractive returns.

Posted By: EN Todayon: July 05, 2023In: General Energy News, Oil & Gas News

Oil, last year’s star asset, is now a distant memory as stocks soar in 2023. However, investors looking for income can still make money with energy. The S & P 500 has risen by almost 16% in the past year while West Texas Intermediate crude has fallen by about 11%. The S & P energy sector is also a disappointment this year, down over 7%. Master limited partnerships offer a small pocket of potential income. These partnerships that focus on oil and gas processing and transportation trade like stocks. They offer yields of over 6%. Stephen Ellis, a Morningstar Research Services energy and utilities analyst, said that the sector remains attractive for investors who are looking to earn income. He warned that growth might not be as robust as in previous years. He said that the U.S. production of oil and gas is not growing as fast as it used to. Ellis said that U.S. producers are reducing their growth to return cash flow in the form share buybacks and distributions. For discerning investors there is the chance to earn dividends and grow their portfolio. Ellis highlighted Energy Transfer Midstream and Equitrans Midstream, which have yields of respectively 9.6% and 6.3%. MLPs are not like other yield-paying companies. They trade on an exchange, like stocks. And they can be volatile – particularly if energy prices fluctuate dramatically. But their structure is very different than that of C corporations. MLPs are run by general partners, who also manage the business. Limited partners – investors – buy interest in the partnership to provide capital. Limited partners receive income distributions. MLPs don’t have to pay federal income tax, but their limited partners do. This allows the partnership a high yield. Tax treatment is also different from what might be seen in a C corporation that pays dividends. In this case, C-corps pay corporate income tax and shareholders are responsible to levies on dividends. Tax hurdles Investors need to keep an eye on where they store these MLPs, despite the attractive income. George Gagliardi is a certified financial planner at Coromandel Wealth Management. He said that asset location was very important. If you decide to keep your assets in a 401(k) or an individual retirement plan, you may be surprised by a tax bill. This is known as unrelated income from a business. Then, the retirement account will be subject to tax. You’ll receive a Schedule K-1 each year from the MLP. This will show the income that you received. This form is required to file your tax return with the Internal Revenue Service. If the K-1 gets delayed, it could make your tax season a bit longer than you would like. When deciding whether MLPs will work best for you, you should consider the impact taxes may have on the final yield. Gagliardi said that people get hungry when they see high yields. Taxes are a major problem. You have to take them into account. ”