Limited Partnerships in the Dividend Mix

 | Jul 31, 2013 | 10:15 AM EDT  | Comments
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Stock quotes in this article:

kkr

,

nycb

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intc

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stx

In addition to the first wave of dividends I highlighted last week (that are going ex as we speak this week), there is also a wave of limited partnership distributions coming. 

I personally don't use LPs for the dividend capture strategy. My reason is completely unrelated to investing fundamentals: My partners are individual tax filers, and the pile of K-1s a mile high creates a tax compliance nightmare.

Some subscribers, however, have pointed out that for various reasons, using LPs is not an issue for them. They want to know what income opportunities are coming.

My thoughts are mixed on using LPs. A key tenet of dividend rotation is to avoid stocks that are owned for the dividend. Those stocks tend to trade more "efficiently", meaning that it takes some time to get out, and your capital is tied up for too long to make the strategy effective.

The master limited partnership space is owned for income, as are the utilities, preferreds and some of the financials. I much prefer sectors such as technology, in which shareholders are often unaware that their stocks even pay a dividend!

I am open, however, to giving LPs a try. I can't guarantee they will "work", but if you are stuck in one or two, at least you will collect an attractive yield. (Keep in mind -- if the annual yield actually equals your income goal, you don't need to trade them. For instance, I target 8% a year in dividend income. If I just hold KKR & Co. (KKR), which yields 7.85%, I am hitting my objective with that block of capital.)

Below is a table of upcoming dividend, with the LPs highlighted. Most are energy-related, and the yields are pretty attractive. For my dividend rotation strategy that does not use LPs, upcoming trades will be in New York Community Bancorp (NYCB), Intel (INTC), and Seagate (STX). There will be a tsunami of dividend coming in mid-August, which we'll highlight in the days ahead.

Upcoming Dividends--LP Focus
FactSet/FirstCall

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