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Summary The fund claims to invest at least 85% of total assets in energy-related master limited partnerships. It currently pays a dividend in the 12% range. The fund as a consistent track record of 11 years. If you recently sold the Kayne Anderson MLP Investment Company ( KYN), I wouldn’t blame you. It seems like the thing to do at this point. The MLP space has been beat up, bloodied, and stomped into the dirt. Overall, the oil & gas storage and transportation sector has fallen more than 30% in the past 12 months. The situation looks ugly and may get worse. So, why put any money into this space? Well, let’s see what it has to offer. Fund Strategy KYN seeks high total returns by investing in energy-related master limited partnerships (MLPs) and their affiliates and in other companies that operate assets used in the gathering, transporting, processing, storing, refining, distributing, and mining of marketing natural gas, natural gas liquids, crude oil, refined petroleum products or coal. Basically, companies that store and/or transport petroleum products. Top 10 Holdings as of 9/30/15 Enterprise Products Partners L.P. (NYSE: EPD ) 13.7% Energy Transfer Partners, L.P. (NYSE: ETP ) 12.0% Williams Partners L.P. (NYSE: WPZ ) 8.2% Kinder Morgan, Inc. (NYSE: KMI ) 7.4% Plains All American Pipeline, L.P. (NYSE: PAA ) 6.2% ONEOK Partners, L.P. (NYSE: OKS ) 4.9% MarkWest Energy Partners, L.P. (NYSE: MWE ) 4.7% Buckeye Partners, L.P. (NYSE: BPL ) 4.0% DCP Midstream Partners, LP (NYSE: DPM ) 3.9% Western Gas Partners, LP (NYSE: WES ) 3.9% Portfolio as of 9/30/15 Data taken from the fund’s website Value Proposition These companies, along with their massive infrastructure investments carry the life blood of this country. They have created a complex web of pipelines and storage facilities that reach every corner of the continental United States. These companies deliver about 26.6 trillion cubic feet of natural gas annually throughout the U.S. so we can keep our lights on, keep our homes warm, and power our industries. Also, much of the crude oil and refined products consumed must be moved and stored throughout the country. Pipelines have become the most cost-efficient way to move these products. Producers of oil and gas as well as customers of these products are equally dependent on the infrastructure investments made by the oil & gas storage and transportation sector companies. In other words, these infrastructure companies are a vital and an integral component of our modern society. Also, consider this. Further investments in our oil & gas storage and transportation infrastructure are continually needed to provide conduits for new oil & gas production and refined products. These new materials and products would be stranded without expansion of the infrastructure. Because of this fact, there is literally tens of billions of dollars’ worth of backlog for new infrastructure projects. Therefore, companies that operate in this space are not likely to be going out of business anytime soon. KYN allows you to invest in many of the companies easily and without the hassle of the dreaded K-1. And right now, there is a sale going on in the MLP sector. KYN is now selling at 50% of its price from November 2014. I think with so many choices out there in the MLP space, it makes sense to let someone else do the picking and save yourself the headache that goes with the K-1s. Risks However, investing in KYN is not for the timid. It is a Closed Ended Investment Company or CEF. If you are not familiar with these, it would be best if you did some research before investing in them. See CEF Connect for further research. This type of fund often uses leverage to enhance its returns. In the case of KYN, its leverage is about 32%. With that, you will notice that these types of funds typical exhibit more volatility than the overall market. It can be as high as twice the S&P 500’s typical volatility. Outlook So, where is KYN headed? In my opinion, we haven’t seen the bottom yet. But that doesn’t mean you shouldn’t have this stock on your radar. Today’s dog is tomorrow’s champion. Keep an eye on stocks like EPD, ETP, and KMI. These are the top three holdings in KYN. All but KMI appear to forming a bottoming pattern. Watch for the momentum indicators to begin to turn higher. This should indicate the bottom is in. Then, it’s time to start scaling in. Build a position over a few months. Be patient and let it come in. Here’s a recent chart of EPD showing its price consolidating around the $25 area. Also, it shows the RSI indicator in an up-trend. These are signs that the stock is bottoming and a trend reversal should soon follow. (click to enlarge) Chart Courtesy of stockcharts.com Why Invest? If you are looking for a good value play that will pay you to wait, KYN may be what you looking for. At the moment, this stock is paying a dividend in the 12% neighborhood. It also has a good record of increasing dividends. According to one source, Dividend Stocks , KYN’s 5-year dividend growth rate is over 9%. And according to Kayne Anderson’s fact sheet , funds invested at inception, i.e., September 2004, would have doubled by September 2015. That works out to be about 6.75% annual return. Not too bad when you also consider the increasing dividend stream you would have had during that time. There was only a slight decrease in dividends during the 2009-2010 period. Of course, it all depends on what your goals are. Are you looking for a steady stream of dependable dividends? I believe that KYN has proved it can do that. Conclusion One final thought I will throw in for free! KYN is not for everybody, but think about this. Money on the sidelines, for all practical purposes, is not earning anything in this low interest rate environment. That goes for all of us small-time retail investors as well as the large hedge funds and institutional investors. Stocks in the MLP space will not fall forever. Sooner or later, they will be noticed by the value hunters. Money will then flow to where there is value. And I believe the value of the MLP space is getting very compelling. Scalper1 News
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