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The Easiest Way to Beat Inflation Right Now

|September 12, 2022

Last week, stocks broke a three-week losing streak, with the S&P 500 closing the week at 4067.36.

Frankly, I’m happy for last week’s rally, but it came after significant volatility that rocked everyone’s portfolios through the summer.

Case in point, June saw the market (as represented by the S&P 500) drop as much as 12.94% from the intraday high of 4177.51 on June 2, 2022 to as low as 3636.87 during the June 17, 2022 session.

Then in July, the S&P swung 11.25% higher from an intraday low of 3721.56 on July 14, 2022 to an intraday high of 4140.15 on July 29, 2022.

And finally, the S&P lost as much as 8.57% from an intraday high of 4325.28 on August 16, 2022 to an intraday low of 3954.53 on August 31, 2022.

After all of that up and down, and including last week’s rally, the S&P 500 is still down 0.8% since June 1, 2022.

That’s led a lot of investors to look for stable, inflation-beating income, rather than getting whip-sawed by the roller coaster ride that characterized the last three months.

Last week, I focused on Real Estate Investment Trusts (REIT) as one of the best ways to achieve this. This week, I want to bring our attention to Master Limited Partnerships (MLP).

If you’ve never heard of a Master Limited Partnership, it is a business venture in the form of a publicly-traded limited partnership.

To be considered an MLP, the partnership is required to distribute a set amount of cash to investors. Assuming it’s well-managed, that’s where the stable income comes in.

To maintain its pass-through status, at least 90% of the MLP’s income must be qualifying income. Qualifying income includes income realized from the exploration, production, or transportation of natural resources or real estate.

For limited partners, 80% to 90% of the distributions are often tax-deferred. This lets MLPs offer attractive income yields which are often substantially higher than the average dividend yield of stocks.

One of my favorite ways to generate stable, inflation-beating income is The Alerian MLP ETF (AMLP) which seeks investment results that correspond to the price and yield performance of its underlying index, the Alerian MLP Infrastructure Index.

AMLP holds a portfolio of 15 of the best midstream MLPs. Its top five holdings include Plains All American Pipeline, L.P. (PAA), Western Midstream Partners, L.P. (WES), Energy Transfer L.P. (ET), MPLX LP (MPLX) and Enterprise Products Partners L.P. (EPD), which account for 10.32%, 10.18%, 10.04%, 9.94% and 9.85%, respectively.

What separates AMLP from so many other MLP investments is its stability. While many individual MLPs needed to reduce their distribution over the last year, AMLP has been relatively stable and even increasing.

At the current price and based on the current distribution, AMLP is delivering a juicy 7.42% annual yield.

That’s considerably better than most stocks and it’s higher than estimates of the upcoming inflation print (which is expected to come in between 5%-6%).

A 7.42% yield versus inflation of 5.5% is literally the definition of beating inflation!

So, if you’re looking for a way to generate stable cash flow that’s higher than the rate of inflation, considering adding AMLP to your portfolio.

I’ll be back next week with another way to take the sting out of inflation – and even profit in spite of it.

Until then, have a great week.

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