Will Rising Interest Rates and Falling Prices Have an Effect on MLPs?

24/7 Wall St.

oil pipelineAfter underperforming the market last year, investors have received a catch-up trade with master limited partnerships (MLPs) delivering 31.11% in total returns over the past year, as measured by the market-cap weighted Alerian MLP index, and 31.9% in total return, as measured by the more equally weighted Cushing 30 MLP index. That compares to 28.35% for the S&P 500. The question for investors is whether this stellar performance can continue.

With the twin events of a rise in interest rates and a reduction in oil and natural gas prices having an impact on valuations across the sector, the MLP analysts at Deutsche Bank A.G. (NYSE: DB) continue to view the sector favorably because of its organic growth, rising dividends and distributions, and still historically low costs of capital. In a new report they examine not only rising rate scenarios, but the amount and structure of the debt that…

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