Energy Master Limited Partnerships and Their Collapse
Energy pipeline and refining companies have been sold to millions of American investors who wanted income. Many retired people were told by their brokers that these stocks would provide high income, have some tax benefits and would be safe investments. Unfortunately, they have fallen even more than the price of oil.
There has been a steep sell-off in energy master limited partnerships (“MLPs”). Not only have the price of these stocks plunged, but they have also cut their distributions. Kinder Morgan (KMI) has cut its dividend by 75%. Breitburn is now trading at $2 a share. Even pipeline companies and refineries are now facing the drop in volume as oil output has declined.
The NYSE Alerian MLP Index, which is an ETF following the energy sector, has lost over 25% in 2016, which is a larger drop than that of oil prices this year. Last year was much worse, as oil prices plummeted in 2015. Alerian tracks the energy MLP stocks, and they are in the tank.
Retired investors were sold Alerian, Breitburn, Linn Energy, Kinder Morgan, Plains All American and other MLPs under the premise that they would provide higher income than that available from treasures or bonds. Some brokers told retired investors that these energy MLPS were as safe as bonds, but would provide more income.
That is not true, as investors have learned this last year. In addition, they are often presented with a Hobson’s choice: if they hold energy MLPs, they risk bankruptcy or restructuring and tax liability, but if they sell them, they also have to pay taxes on “income” that was, in fact, a distribution to them of principal.
If you have been sold energy MLPs and energy stocks for their income, and have lost money, please contact us. We can help you if these investments were too risky for you or if their risks were not fully described to you. If you had a large portion of your savings in energy stocks, mutual funds and energy MLPs, at your financial advisor’s suggestion, FINRA rules provide for compensation.