Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This Is My Favorite Kind of Money

Companies / Investing 2013 Nov 13, 2013 - 01:18 PM GMT

By: Money_Morning

Companies

Robert Hsu writes: My favorite kind of money does three things.

First, it grows. And it keeps growing every single year - by double digits.

Second, and unlike most corporate profits, it only gets taxed once.


And third, it's "lean." The businesses paying my favorite kind of money are very sensitive to cost, while retaining virtually no earnings. After all, they have to pass through nearly all their income to investors.

Few investments give you all three of these benefits, of course. That's what makes the shares below so attractive.

First, let's look at each of my "favorite money factors" more closely...

Factor No. 1
Double-Digit Growth

Financial planners like to put you in one of two camps:

The "growth camp," which they say is right for younger investors, and the "income camp," which they say is proper for retirees and those close to retirement.

As we've said before, don't believe it. In reality, growth and income are inseparable.

There's only one reliable way to make 10% or more a year... especially now, in a rising interest rate environment.

We have to seek total return. For me, this means targeting companies that:

generate decent current income, around 5% to 10% a year, and
support that income with strong underlying business fundamentals... resulting in another 5% to 10% of capital appreciation.

So, seeking yield alone is dangerous. It can suck you into bad investments. After all, a high yield is high for a reason.

Factor No. 2
A Brilliant Tax Structure

My favorite kind of money comes directly to me, and it doesn't make any stops along the way, either. That's why I like master limited partnerships (MLPs), real estate investment trusts (REITs), business development corporations (BDCs), and private equity firms.

You see, all of these companies are organized as pass-through entities. They're set up differently than traditional public corporations. While traditional corporate structures are designed to retain earnings, pass-through entities such as these are designed to funnel at least 90% of their earnings directly to shareholders.

And you'll get to keep far more of your pass-through profits, too.

For shareholders, pass-through securities offer the limited liability protection of traditional corporations, but without the infamous double tax bite you'd normally take from Uncle Sam.

Because pass-through securities' cash flow is paid out to shareholders - without corporate tax - and is only taxed once at the partner level.

The reason for this is due to the legal structure of pass-through securities, which, as I've mentioned, are set up to distribute at least 90% of their earnings directly to shareholders or unitholders.

This single taxation, as opposed to the double taxation on traditional corporations, means dividend payouts from pass-through entities are bigger - much bigger. As we'll see, this makes many of their annual dividend yields much more attractive.

How these entities treattheir own money is pretty impressive, too.

Factor No. 3
Highly Efficient Management

Because these companies are obligated to distribute some 90% of their earnings to unitholders, there is little in the way of retained earnings left... for management to spend on perks such as private jets and $500,000 holiday parties. This forces MLPs to be lean and efficient, compared to traditional corporations, fat with cash.

Because of lower taxes, cash-producing assets such as oil wells become more profitable under MLP ownership than corporate ownership. Many MLPs take advantage of their favorable tax structure by buying oil wells from energy companies barely making money on these wells after-tax.

You'll love the yield, too.

Of course, the most attractive aspect of pass-through securities is their outstanding yields. While most energy stocks offer yields of about 3%, most of the biggest energy MLPs offer yields in the 8% to 10% range. This kind of yield is something that's attractive to most investors, especially those who are focused on generating income from their existing assets.

I remember the 1980s, when Congress first approved the use of MLP structure in energy exploration and production firms. I knew then, as now, that this unique approach had a bright, and profitable, future ahead of it. It wasn't long after approval that other companies in other industries made the move to become pass-through entities. The tax advantages alone made sure that happened. And three decades later, we have much more to choose from: MLPs, REITs, BDCs, and private equities.

They're different securities, of course, but they're all my favorite kind of money.
What I'm Looking at Right Now

These shares all represent MLPs, REITS, BDCs, and private equity. There are plenty of great investments in this group, but these are my very favorites:

Vornado Realty Trust (NYSE: VNO)

Teekay LNG Partners L.P. (NYSE: TGP)

Kinder Morgan Energy Partners L.P. (NYSE: KMP)

The Blackstone Group L.P. (NYSE: BX)

Kohlberg Kravis Roberts & Co. L.P. (NYSE: KKR)

Source :http://moneymorning.com/2013/11/13/this-is-my-favorite-kind-of-money/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in