How hot are Master Limited Partnerships (MLPs)? Very hot.
MLPs are backed by physical assets that generate revenue under long-term contracts. Their main attraction: they pay out a juicy yield to investors.
No less than three are pricing this week, including USA Compression Partners (USAC), which prices tonight for trading tomorrow. It provides natural gas compression services and provides a roughly eight percent yield.
Huh? MLPs are traditionally gas and oil pipeline companies. But MLPs are so popular now that they are branching off into new areas.
The other two MLPs pricing this week: SunCoke Energy Partners (SXCP), which owns coke-making facilities to aid in steel production (8.25 percent yield) and CVR Refining (CVRR), which owns petroleum refining operations in Kansas and Oklahoma (18.8 percent yield!).
See what I mean? It's all part of the "reach for yield" story. Here's another example of how hot they are: tomorrow Global X Funds will launch the first ETF for the small-cap segment of MLPs. Who needs a "small-cap MLP ETF?"
"As the energy infrastructure in North America continues to expand, smaller capitalization MLPs often control increasingly important energy assets and are active in the exploration, transportation and storage of domestic energy resources," says Global X in a release.
"Because many of these companies are not included in major MLP indices, in many cases they have not experienced the same price growth as their larger counterparts and may offer value at current levels."