Last week, I bought a position in Vanguard Natural Resources LLC (VNR). VNR is a master-limited partnership. MLPs in the United States are involved in transporting and storing a limited set of commodities, particular petroleum and other natural resources like natural gas. Basically, MLPs build and run pipelines for critical energy products used across the country.
MLPs are required to pay out a high rate of its cash flows as dividends in order to avoid paying corporate income taxes at the federal and state level. There are some other benefits involving depreciation that I won’t go into here. They aren’t effective when bought inside tax deferred plans like Roth IRAs, which is why I bought it in my tax exposed account. Just be sure to check if your CPA knows how to properly handle this when filing your tax returns.
If you haven’t gleaned this yet, MLPs have a higher payout than typical stocks. Looking at Yahoo, VNR’s current dividend yield is 8.40% ($2.40/share per year). It has an attractive P/E ratio of 7.50. Combined with a purchase price of $27.49, it makes a nice and affordable equity. Add to it that most if not all dividend payouts will be tax free (until you finally sell the stock, which is hopefully never), and you got yourself a sweet investment in my book to eventually draw retirement income from years from now.
VNR has recently announced their plans to shift from quarterly dividend payouts to monthly payouts in a few months. There aren’t many stocks that pay out monthly dividends. Imagine the convenience of building up a nice position to draw dividends upon in retirement. For the record, I decided on picking VNR before this was announced, but was pleased to hear such an announcement.
The other criteria I employed before picking VNR was the fact that it has been increasing it’s dividend payouts for several years. It is nowhere near being a dividend aristocrat or dividend king yet. In fact, it has only engaged in increasing its dividends for five years. For some, this may be a critical factor with five years being too short. In this case, I decided to take a chance. If they shift their dividend payout strategy in the future, I can sell my position and shift it to another MLP. There are many to choose from.
By all means, feel free to read my analysis and use it to create your own investment criteria, but don’t just buy VNR because I did.
Disclosure: Long VNR