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Frequent Contributor

Throw in the towel on EPD and MMP?

I’ve owned these for around 5-6 years. The idea was to add an income-generating diversifier to my portfolio, with the special feature of tax-deferred income in my taxable account.

However, the simple fact of the matter is that they’ve been a poor investment. Dividend yield is up around 10%, but—with dividends reinvested—my positions just don’t seem to grow. The cost basis is so misleading that I don’t know whether I’ve actually made or lost money in all this time, but if I’ve made any money it hasn’t been much.

For boring companies with boring balance sheets, the share prices have been as volatile as the dickens.

I completed a fairly significant portfolio makeover this year, but until now I’ve spared these two. I’d like to poll the audience here: hold or sell?

FWIW, Fidelity’s “Equity Summary Score” is “Bullish” for both stocks, even though the rebound from the March low has been anemic.

If I sell, would probably maintain my AA by adding to SCHD (and RTX) in taxable, and/or VWIAX / VWENX in IRA.

TIA.

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Participant ○○○

Re: Throw in the towel on EPD and MMP?

Very difficult question. I don't like where you are and I like where you are thinking of going.

1. I would NEVER invest in that asset class. SELL.

2. It's a TERRIBLE idea to sell an EQUITY-like asset class when it's down. HOLD or add.

3. Next comment please. 

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Participant ○○○

Re: Throw in the towel on EPD and MMP?


@chang wrote:

I’ve owned these for around 5-6 years. The idea was to add an income-generating diversifier to my portfolio, with the special feature of tax-deferred income in my taxable account.

However, the simple fact of the matter is that they’ve been a poor investment. Dividend yield is up around 10%, but—with dividends reinvested—my positions just don’t seem to grow. The cost basis is so misleading that I don’t know whether I’ve actually made or lost money in all this time, but if I’ve made any money it hasn’t been much.

For boring companies with boring balance sheets, the share prices have been as volatile as the dickens.

I completed a fairly significant portfolio makeover this year, but until now I’ve spared these two. I’d like to poll the audience here: hold or sell?

FWIW, Fidelity’s “Equity Summary Score” is “Bullish” for both stocks, even though the rebound from the March low has been anemic.

If I sell, would probably maintain my AA by adding to SCHD (and RTX) in taxable, and/or VWIAX / VWENX in IRA.

TIA.


I currently don't own either, having sold before the stuff hit the fan in February.

I am rather embarrassed to admit MLPs have not been an area in which I have covered myself in glory.

They seem rather cheap on a headline basis, all else equal, but volumes and counterparties seem likely to deteriorate.  The political environment doesn't seem helpful, in that I wonder if another pipeline will get built anywhere in the country.  What about a Biden EPA?  Then again, a presidential term is only 4 years and who knows the future.

If they sold off hard, I can't say I might not be tempted to nibble all else equal.  But in the real world, if they do, everything else will likely be down hard as well.

Some lessons I have learned in the last 6 months are that I know less than I think I do, and that I don't have expertise in all areas.

I am gradually transitioning, at the margin, toward sector ETFs and broad and cheap index based fare (VIG, SCHD) in areas where I generally like the fundamentals but don't have strong conviction about individual holdings.  I have in the past likely been too absolutist in the other direction.

I can't blame you if you want to wash your hands of them and go to SCHD or whatever.  Then again, depending on your position sizing (hopefully not too large) you may feel comfortable continuing to hold them.

All I know is if I was in your situation, I would expect them to immediately go up 20% if I sold them, and to continue to languish if I held them.

I don't have particularly strong conviction on EPD or MMP at current prices and in current circumstances.  I am not unhappy I don't own them.  But my sentiment may be a contrary indicator.

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Explorer ○○○

Re: Throw in the towel on EPD and MMP?

Holding as long as the divy’s keep coming.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@Kudzu wrote:

Holding as long as the divy’s keep coming.


The long term dividend payout is closer to 5%. Can they sustain 10% forever, if need be? If the dividend is cut, the price fall could be very ugly. I’m wondering if I need to live with this risk.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?

It sounds as if your current rationale is not same as when you bought the investments. In addition to your stated requirements, you also want appreciation. Taken in that context, I’m not sure the investments are meeting your needs/desires?

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@chang. EPD,MMP

         Neither has grown in 10 years really but are at similar levels as ten years ago it looks like. I would never buy energy stocks for growth. Your giving that away for yield. A bottom in perceived value seems to have been reached. Both have excellent management and raised dividends over that time period.

         They seem to be on sale then at rock bottom prices. For income they are now similar to CEF’s with annual raises in dividends and a very remote possibility of a little growth from a bottom in the future. So maybe better then a CEF in that regard. I vote to keep both and maybe add to them for more cheap income.

          There is no crystal ball about future dividends. It either fits your plan, risk parameters etc. or it doesn’t. You seem to think it doesn’t so there’s the answer for you. I live on CEF income so I’am accustomed to varying payouts and no growth so my view will be different then most. 

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@chang wrote:

I’ve owned these for around 5-6 years. ............The cost basis is so misleading that I don’t know whether I’ve actually made or lost money in all this time, ............I completed a fairly significant portfolio makeover this year, but until now I’ve spared these two. I’d like to poll the audience here: hold or sell?


 

According to the dividend channel, a $10,000 investment in EPD and MMP six years ago would have returned $6,514 for EPD and $6,783 for MMP. During the same period, SPY returned $18,417.

My vote would be to sell.

"There seems to be some perverse human characteristic that likes to make easy things difficult.---Warren Buffett"

veni vidi vici vti
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Participant ○○○

Re: Throw in the towel on EPD and MMP?

Question: If you didn’t already own it, would you consider buying it today...and why?

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Follower ○○○

Re: Throw in the towel on EPD and MMP?

Hello Chang

I resisted investing in the oil patch until late 2014. There were many "glowing reports" of stellar companies. Since then, I have lost over $220,000 in 5 separate Ch 11 BKs due primarily to management decisions that can't be forecast from financial statements. Never again. Good luck.  

Eng

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@racqueteer wrote:

It sounds as if your current rationale is not same as when you bought the investments. In addition to your stated requirements, you also want appreciation. Taken in that context, I’m not sure the investments are meeting your needs/desires?


@racqueteer Well, yes and no. Five years ago I was working and earning a good salary. Now I’m retired. So, strictly speaking, I should be even more income oriented now. But in truth it was an experiment in diversity (isn’t that all the rage now?) more than anything else.

Even now I’m not an “income investor”. I reinvest all dividends in all securities, and when I need money, I sell whatever I think is the most appropriate thing at the time. Hence, I am a pure TR investor. (Which is what everyone ultimately is, whether they recognize it or not.)

MLPs can behave in quite an uncorrelated fashion to other securities, such as today when EPD rose 1.8%. But on a total return basis, as Bentley has pointed out 10^(10^10) times, MLPs have been a failure compared to a simple index.

Hence, I’m tempted to further simply my portfolio and sell these things, putting the proceeds elsewhere (possibly into other dividend paying funds). 

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Contributor ○

Re: Throw in the towel on EPD and MMP?

Selling MLPs will generate a tax hit. I know you retired recently, and I would think a consideration would be - did all of your taxable severance pay or benefits already get reported in your 2019 taxes? If they are included in your 2020 income taxes you might want to wait until 2021 tax year to take the additional taxable income that this sale will generate.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@PN wrote:

Selling MLPs will generate a tax hit. I know you retired recently, and I would think a consideration would be - did all of your taxable severance pay or benefits already get reported in your 2019 taxes? If they are included in your 2020 income taxes you might want to wait until 2021 tax year to take the additional taxable income that this sale will generate.


I don’t think I will get a tax hit. More likely a loss. My Fido cost basis shows a huge loss but that’s wrong—I think it does not account for the fact that distributions reduce your cost basis (that’s the “tax deferred” aspect). The only way for me to be sure would be to ask my tax preparer. But I think I’m probably close to break-even or at a small loss, considering my purchase price vs. current value (all dividends reinvested).

Even if there is a CG, which I doubt, I booked some losses earlier in the year which should neutralize any CG.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?

My 2 pennies. I'm very glad to be out of that asset class. I took a tax harvest on EPD and ETP a couple years ago. I probably feel about them as you do with FI CEFs (which I hold in very small amounts). 

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Explorer ○

Re: Throw in the towel on EPD and MMP?

I dumped my last tranche of MMP about 12 mos ago with loss after holding it for more than 5 yrs.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@chang wrote:

@racqueteer wrote:

It sounds as if your current rationale is not same as when you bought the investments. In addition to your stated requirements, you also want appreciation. Taken in that context, I’m not sure the investments are meeting your needs/desires?


@racqueteer Well, yes and no. Five years ago I was working and earning a good salary. Now I’m retired. So, strictly speaking, I should be even more income oriented now. But in truth it was an experiment in diversity (isn’t that all the rage now?) more than anything else.

Even now I’m not an “income investor”. I reinvest all dividends in all securities, and when I need money, I sell whatever I think is the most appropriate thing at the time. Hence, I am a pure TR investor. (Which is what everyone ultimately is, whether they recognize it or not.)

MLPs can behave in quite an uncorrelated fashion to other securities, such as today when EPD rose 1.8%. But on a total return basis, as Bentley has pointed out 10^(10^10) times, MLPs have been a failure compared to a simple index.

Hence, I’m tempted to further simply my portfolio and sell these things, putting the proceeds elsewhere (possibly into other dividend paying funds). 


 

Since you mentioned me in your post, do you mind if I ask you why you are having difficulty determining whether or not you made or lost money on your EDP and MMP investments?

According to the dividend channel, a $10,000 investment in EPD and MMP six years ago would have returned $6,514 for EPD and $6,783 for MMP. During the same period, SPY returned $18,417. Am I missing something?

"There seems to be some perverse human characteristic that likes to make easy things difficult.---Warren Buffett"

veni vidi vici vti
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Participant ○○

Re: Throw in the towel on EPD and MMP?

Held in a taxable account? ROC reduces your cost basis and the final K1 assigns you a slug of recaptured depreciation that's taxed at ordinary income rates, not capital gains. You offset the latter with your accumulated losses from the K1, a yearly task for you. your accountant, or tax software.

Off the top of my head, it seems to me that one gets into a tax trap if an MLP is held too long in taxable. That recaptured depreciation just grows and grows, while your cost basis goes to zero. And when that happens, aren't the yearly distributions taxable instead of deferred? I could be wrong. I never got into that position, so never had to research it.

By the way, both MMP and EPD, and probably all these partnerships, archive your K1's in taxpackagesupport.com if you didn't save them or didn't get them forwarded from your broker.

I sold my EPD and half my MMP in 2018. Made some money. Got greedy with my remaining 200 shares of MMP and kept waiting til the next quarterly distribution, about $1/share. Then kaboom in March. Now down 30%. Gonna bail in three weeks, after the August distribution. Ha ha.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?


@DocWu wrote:

Held in a taxable account? ROC reduces your cost basis and the final K1 assigns you a slug of recaptured depreciation that's taxed at ordinary income rates, not capital gains. You offset the latter with your accumulated losses from the K1, a yearly task for you. your accountant, or tax software.

By the way, both MMP and EPD, and probably all these partnerships, archive your K1's in taxpackagesupport.com if you didn't save them or didn't get them forwarded from your broker.


 

 I'm assuming, given his background, he has a good understanding of his basis and tax consequences.

"There seems to be some perverse human characteristic that likes to make easy things difficult.---Warren Buffett"

veni vidi vici vti
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Frequent Contributor

Re: Throw in the towel on EPD and MMP?

@DocWu Thanks - yes, of course I download my K-1s every year and send them to my tax preparer.

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Frequent Contributor

Re: Throw in the towel on EPD and MMP?

Thanks for everyone’s feedback. I’ve put in trailing stop loss sell orders at -1%, so I’m sure these will be sold within a few days. 

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