Finally, An MLP That's Good for Your Retirement ... - Investment U

by Mike Kapsch, Investment U Research
Tuesday, October 9, 2012

Last month, I wrote about the advantages of investing in upstream master limited partnerships (MLPs) such as LINN Energy (Nasdaq: LINE).

In less than a decade, the firm has navigated its way to become a top 10 independent energy exploration and production company, with over 15,500 oil and gas wells in production.

Over the past two years, shares have risen an average of 15% per year.

In addition, LINN just raised its EBITDA (earnings before interest, taxes, depreciation and amortization) guidance to $1.365 billion from $1.35 billion for the fiscal year of 2012.

But for income seeking individuals, this just the beginning?

That?s because LINN boasts a hefty dividend yield of 6.9%, over three times the average dividend yield offered on the S&P 500.

Plus, since the company is an MLP, its quarterly distributions are considered a return of capital, not a dividend. Therefore, you aren?t taxed on the income you receive from it. And you can reinvest each distribution without having to pay taxes on it.

In today?s low-yield environment, it?s an income investor?s dream come true.

However, if you own an IRA account, Roth, or 401(k), investing in a MLP like LINN Energy doesn?t make much sense.

That?s because these accounts are already considered tax advantaged. So you?ll lose the tax benefits that LINN and other MLPs offer when you add them to these accounts. Sometimes you may even get hit with additional taxes.

Luckily, though, there is a way to add LINN Energy to your retirement account without worrying about whether or not it?s okay to do so.

Just last week, LINN announced the initial public offering (IPO) of LinnCo, a wholly owned subsidiary of LINN Energy.

LinnCo was created for one sole purpose: to own LINN units.

As the company reports, its ?financial condition and results of operations will depend entirely upon the performance of LINN.?

In fact, the only difference between the two is that LinnCo is structure as a C corp. It offered 30.25 million shares in its IPO.

And like shareholders of any corporation, LinnCo investors will receive a 1099, instead of a K-1, making it an ideal income-generating opportunity for retirement accounts.

But you can?t invest just yet. As CNN Money states, while ?a registration statement relating to these securities has been filed with the SEC,? it ?has not yet become effective.?

We?ll know more in the days to come. And it?s likely going to be worth the wait.

That?s because LINN Energy?s projects are 100% hedged through 2016.

Not to mention, the company only invests in low-declining oil and gas assets, making it one of the safest opportunities to earn income today.

Not to mention LINN has:

• A 31% increase in its operating income over the last year.
• Quarterly revenue growth is closing in on 20%.
• And it has increased its quarterly cash distribution a full 81% since its IPO in 2003.

You quickly see why LinnCo may be the perfect opportunity for your brokerage or retirement account.

Just be aware: Due to tax liabilities, you won?t receive the same yield as you would if you owned units of LINN Energy outright. But the company will almost certainly do much better than the current 2% average yield from the S&P.

Now just keep your eyes peeled for when shares hit the market.

Good Investing,

Mike

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Source: http://www.investmentu.com/2012/October/good-mlp-for-your-retirement.html

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