The MLP Analysis:
Income Growth Advisors, LLC “IGA” advocated buying dips in the MLP market in 2008 and 2016. We are recommending buying these aberrantly high yield securities again. The underlying cash flows of MLPs have nominal correlation to oil prices and their distributions or dividends are relatively safe.
MLPs (midstream fee-based operators) offer exceptionally high yields which are aggressively sought by yield chasing investors. These two closed-end MLP funds–KYN and KMF–are fundamentally cheap and should improve significantly.
Kayne Anderson Midstream MLP Company–KYN–closed at $3.49 with a $4.47 Net Asset Value (NAV)
- 21% discount to NAV
- Yield $0.12/month times 12= $1.44
- $1.44/3.49 yield 41%
KMF Kayne Anderson Midstream Energy Fund—KMF—closed at $2.50 with a 3.60 NAV
- 30.5% discount to NAV
- Yield $0.09/month or $1.08/yr
- $1.08/ 2.50 43% yield
Both KYN and KMF saw a 95% price drop in the last 30 days, before doubling of their bottoms March 18th, 2020. Should they return to yields of 9%, these funds could nearly triple, before you count the 40% yields.