A Leveraged Bet on MLPs

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
You already have a bet on the master limited partnership (MLP) sector through your holding in Vanguard Natural Resources (VNR), which pays a yield of 8.3%.
This week’s Dividend Pro recommendation — ETRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (MLPL) offers you a bet on the same sector with an even higher annual yield of 9.38%.
MLPL is designed to track a leveraged investment in the Alerian MLP Infrastructure Index. It pays a variable quarterly coupon linked to the leveraged cash distributions associated with its underlying, 25 energy infrastructure MLPs.
The majority of these publicly traded MLPs operate in the energy infrastructure industry, owning and operating assets such as natural gas or crude oil pipelines. And because they are legally required to pay out 90% of their earnings, they historically have provided relatively high dividend yields. The largest holdings in MLPL are Kinder Morgan Energy Partners LP (KMP) and Enterprise Products Partners LP (EPD) which account for close to 20% of the Index.
MLPL uses leverage to magnify the yield on the underlying basket of MLPs. And leveraged exchange-traded notes (ETNs) have a reputation for being wildly volatile. This is because most ETNs are re-set on a daily basis.
 
In contrast, MLPL’s leverage is reset monthly. That means MLPL will behave differently from most leveraged ETNs. That said, it may still offer a more volatile ride than you are used to seeing. You may want to take a smaller position size than you do normally.
So buy the ETRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (MLPL) at market today. and place your stop at $38.00. You can expect your first quarterly dividend payment in early July. There are no options on this one.
Also, I am taking Navios Maritime Partners L.P. (NMM) off of the watch list and recommending that you re-enter this position with its 10.8% yield. Place your stop at $14.25.
Portfolio Update
 
Seadrill (SDRL) rose 2.89%. Seadrill recently secured day rates of almost $600,000, but now expects day rates of  $750,000 will soon be commonplace. This is a huge boost in future cash flow and is very bullish for the stock. Back above its 50-day moving average, SDRL is now a BUY.
 
Hospitality Properties Trust (HPT) jumped 1.77%. HPT announced that it will release its first quarter 2012 financial results before the NYSE opens on Monday, May 7, 2012. HPT remains a BUY.
 
Vanguard Natural Resources (VNR) jumped 1.75%. Excluding one-time items, the company reported it posted an adjusted profit of $21.6 million, or 41 cents per share, for the recent quarter. The company has increased its quarterly distribution for the sixth quarter in a row and will be paying 59 cents per unit on May 15 to shareholders of record as of May 8. Above its 50-day moving average, VNR is a BUY.
 
Global X SuperDividend ETF (SDIV) fell 0.36% this past week. SDIV provides you with exposure to the performance of 100 companies that rank among the highest dividend-yielding equity securities in the world. The fund will pay out a monthly dividend of 10.9 cents per share on May 10 to shareholders of record on May 3. Still trading under its 50-day moving average, SDIV remains a HOLD.
 
Two Harbors Investment Corp. (TWO) rose 0.48%. The company reported Comprehensive Income of $195.7 million, or $1.05 per diluted weighted average common share. Book value increased to $9.67 per common share at March 31, 2012, compared to $9.03 per common share at December 31, 2011, due primarily to appreciation in the company’s non-Agency holdings. Yielding over 15%, TWO remains a BUY.
 
Hercules Technology Growth Capital (HTGC) rose 1.51% in its first week in the portfolio. With a large exposure to the emerging tech boom in Silicon Valley, this Business Development Company remains a BUY.

P.S. Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026655 or go to NicholasVardy.lasvegasmoneyshow.com. I also encourage you to sign up for my hedge fund seminar, Wednesday, May 16, 9 a.m.-11 a.m. In addition, please click here to sign up for my private meeting at the MoneyShow for you and my other subscribers on Wednesday, May 16, 12:15 p.m.-1 p.m., in the Salerno Room.

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