Here is a story that illustrates the value of Master Limited Partnerships.

Mary’s husband died nine years ago with a large portfolio of blue chip stocks. He left her this note: “Never sell General Motors, General Electric, Bank of America, Lehman Brothers, Fannie Mae and AIG. They all pay good dividends. Besides, as General Motors and General Electric go, so goes the country. Always keep some money in U.S. Treasuries.”

Last year Mary did not receive any dividends from General Motors, Lehman Brothers, Fannie Mae, and AIG because the companies were either bankrupt or in government receivership. GE had cut its dividend by more than half and Bank of America dropped its quarterly distribution from $.64 per quarter to $.01 per quarter. Mary needed to generate high cash flow from her investments to help pay for college for her eight grandchildren.

About a year ago, Mary learned about Master Limited Partnerships (MLPs) and their reliable, increasing, tax deferred dividend history. Although she thought they may be risky because she had never heard about them before, Mary invested in a portfolio of ten MLPs.

Mary moved $300,000 of her U.S. Treasury bonds to a $300,000 MLP portfolio. The Treasury bonds had paid her $11,000 per year in taxable interest. Because Mary was in a high federal tax bracket, she had to pay 35% of the interest received from her treasury bonds in taxes. Mary’s after tax income from the U.S. Treasury bonds was $7,150. Mary used the income from the Treasury bonds to help pay for her grandchildren’s college expenses. Each child received $893.75 per year.

One year after Mary invested in a portfolio of MLPs, she was pleasantly surprised to discover that the income received from her MLP portfolio exceeded $24,000 per year, a greater than $13,000 increase. In addition, her accountant told her she only paid $1,680 in taxes, allowing her to give $2,790 to each grandchild for education. She was able to increase her gift to each from $893.75 to $2,790. In addition, six of the ten MLPs she invested in had increased their dividend during the year.

About Master Limited Partnerships

Master Limited Partnerships are engaged in the business of energy. They trade on the New York Stock Exchange or NASDAQ which gives them the same marketability as stocks. Some own pipelines, like Buckeye Pipeline (BPL) that transport oil, natural gas or refined petroleum products and others distribute propane like Amerigas (APL). They are not taxed at the federal level, unlike regular C corporations, which gives them the ability to pay out much more of the cash flow to investors.

David T. DeWitt, CFP specializes in Creating Income for Life, Growth Stocks and IRAs. For our latest report, visit our website at http://www.incomingchecks.com