March 2018 Edition - suredividend.com · Buckeye Partners LP ... (SNH) REIT $16 0.60 9.7% 99% 2.0%...

Sure Retirement Newsletter

HIGH-YIELD, HIGH-QUALITY INVESTMENTS

March 2018 Edition

By Ben Reynolds, Nicholas McCullum, & Bob Ciura

Edited by Brad Beams

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Table of Contents

Opening Thoughts - The Unique Value Proposition of REITs - .............................................. 3

The Retirement Top 10 – March 2018 ........................................................................................ 4

Analysis of Top 10 Securities ....................................................................................................... 5

Buckeye Partners LP (BPL) ........................................................................................................ 5

Energy Transfer Partners LP (ETP) ............................................................................................ 7

Omega Healthcare Investors Inc. (OHI) ..................................................................................... 9

Owens & Minor Inc. (OMI) ...................................................................................................... 11

Enterprise Products Partners LP (EPD) .................................................................................... 13

Holly Energy Partners LP (HEP) .............................................................................................. 15

Welltower Inc. (WELL) ............................................................................................................ 17

AmeriGas Partners LP (APU) ................................................................................................... 19

TC PipeLines LP (TCP) ............................................................................................................ 21

Senior Housing Properties Trust (SNH) ................................................................................... 23

Closing Thoughts – Why Taxes & Inflation Matter–.............................................................. 25

List of Investments by Sector ..................................................................................................... 26

List of Investments by Rank ...................................................................................................... 29

List of Past Recommendations & Ranking Criteria ............................................................... 31

Portfolio Building Guide ............................................................................................................ 33

Examples ................................................................................................................................... 33

Tax Guide .................................................................................................................................... 34

Corporations .............................................................................................................................. 35

Master Limited Partnerships (MLPs)........................................................................................ 36

Real Estate Investment Trusts (REITs)..................................................................................... 37

Business Development Companies (BDCs) ............................................................................. 38

Glossary of Common Terms & Acronyms ............................................................................... 39

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Opening Thoughts - The Unique Value Proposition of REITs -

Real Estate Investment Trusts (REITs) as an asset class have several favorable characteristics. REITs

are investment vehicles that allow individual investors to buy into businesses (technically trusts)

that focus on acquiring and managing real estate.

One of the biggest disadvantages of owning traditional real estate as an investment is the extremely

high cost of diversifying your holdings. The money and time required to have 10 or 20 different

properties is prohibitive for all but the wealthiest of individuals.

That’s where REITs come in. REITs have management teams in place whose business is to find

attractive real estate investment opportunities that are reasonably diversified.

Additionally, REITs also tend to have better access to capital markets than individuals. Investing

in Real Estate is typically done with significant leverage because income from properties is

relatively predictable. A large REIT with a sound balance sheet is likely to be able to use debt

financing at more attractive interest rates versus what an individual could find.

REITs are also required by law to pay out 90% or more of their net income to unit holders. This

makes them have (on average) higher yields than common stocks. In addition, property values tend

to slowly appreciate over the long run. Intelligent capital allocation and leverage can further boost

returns. The end result – equity REITs have averaged 11.9% annualized total returns from 1971

through 2017, versus 10.6% total returns for the S&P 500 over the same time period.

The factors that cause the Federal Reserve to raise interest rates are the same factors that cause

REITs to grow their income and distributions. A strong economy means less vacancy and rent

increases – which helps to counteract potential declines in real estate values from rising interest

rates. All told, REITs have outperformed stocks in 5 of the last 7 periods of rising rates.

Source: Cohen & Steers

Rising interest rates have caused REIT prices to decline – creating better valuations. There are

three REITs recommended in this month’s Sure Retirement Newsletter to take advantage of this

trend.

https://www.cohenandsteers.com/assets/content/resources/insight/REITS_and_theTruth_About_Rising_Rates.pdf

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The Retirement Top 10 – March 2018

Name Type Price Score Yield Payout Growth Beta

Buckeye Partners LP (BPL) MLP $44 1.00 11.4% 100% 7.5% 1.75

Energy Transfer Partners (ETP) MLP $18 0.90 12.7% 83% 6.5% 1.68

Omega Healthcare (OHI) REIT $27 0.85 9.7% 88% 9.0% 0.06

Owens & Minor (OMI) Stock $17 0.78 6.1% 65% 11.0% 2.43

Enterprise Products (EPD) MLP $26 0.75 6.6% 83% 10.0% 1.26

Holly Energy Partners (HEP) MLP $29 0.66 8.9% 91% 6.0% 0.46

Welltower Inc. (WELL) REIT $52 0.65 6.7% 88% 5.0% 0.40

AmeriGas Partners (APU) MLP $41 0.63 9.2% 98% 2.5% 1.23

TC PipeLines (TCP) MLP $49 0.62 8.1% 99% 6.0% 1.27

Senior Housing Prop. (SNH) REIT $16 0.60 9.7% 99% 2.0% 0.59

Notes: The ‘Score’ column shows how close the composite rankings are between the top 10. The

highest ranked security will always have a score of 1. The ‘Price’ column shows a recent price of

the security. The ‘Payout’ column uses either earnings, funds from operations, or cash available

for distribution in the denominator. The numerator is the security’s payment to its owner.

One stock fell out of the Top 10 last month: ONEOK (OKE). This stock is a hold, not a sell.

ONEOK has been replaced by TC PipeLines (TCP) in this month’s Top 10.

The stability of the Top 10 list shows the ranking method is consistent, not based on rapid swings.

Remember: Securities that fall out of the Top 10 are holds, not sells.

Note: Dividend or distribution yield is used for comparing valuations in the individual company

analyses below instead of price-to-earnings (P/E) ratios. P/E ratios are not meaningful for MLPs

and REITs. Dividend or distribution yield is a better comparative metric for high payout

investments.

An equal weighted portfolio of the Top 10 has the following characteristics:

Payout Ratio: 89.4%

Dividend or Distribution Yield: 8.9%

Growth Rate: 6.6%

Note: Data for the rankings, Top 10 summary page, and yield images is through the market close

as of 3/8/18. Data elsewhere is from between market close 3/8/18 and market close 3/9/18.

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Analysis of Top 10 Securities

Buckeye Partners LP (BPL)

Key Statistics, Ratios & Metrics Distribution Yield: 11.4% 10 Year Distribution Growth Rate: 3.9%

Most Recent Annual Distribution Increase: 4.1% Sector: Energy

Distribution History: 19 years of increases Business Type: MLP

Ex-Distribution Date: 5/11/18 (estimated) Payment Date: 5/22/18 (estimated)

Overview & Current Events

Buckeye Partners is a midstream MLP with approximately 6,000 miles of pipelines, more than 135

liquid petroleum product terminals, and over 176 million barrels of total storage capacity.

Buckeye’s portfolio of pipelines and terminals is located in the East Coast, Midwest, and Gulf Coast

regions of the U.S. It also has a significant international presence, with a 50% interest in VTTI. On

February 9th, Buckeye reported fourth-quarter and full-year financial results. Fourth-quarter

distributable cash flow (DCF) rose 11% from the same quarter a year ago. For 2017, adjusted EBITDA

and DCF rose 8.3% and 0.7%, respectively.

DCF growth slowed in 2017, due in large part to increased interest and debt expense related to the

long-term debt issued to partially fund the VTTI purchase. In addition, the Global Marine Terminals

segment was negatively impacted by lower capacity utilization, due to weak storage market conditions.

2017 was a challenging year; the company also dealt with service disruptions due to Hurricane Harvey.

Growth Prospects & Safety

Buckeye’s growth will be fueled by new projects. For example, its South Texas Gateway project calls

for construction of a 600-mile long-haul pipeline, with total expected capacity of up to 400,000 barrels

per day. Once the project is completed, it will significantly expand Buckeye’s distribution capabilities

in the Permian Basin, which is one of the highest-producing oilfields in the U.S. The project is set for

completion in 2019. Buckeye is also considering a natural gas liquids pipeline in the Permian, to

further add to its presence in one of the most attractive oilfields in the U.S.

Another project set to ramp up in the near-term is the Michigan/Ohio expansion project. The company

has secured 10-year commitments from oil customers, totaling 50,500 barrels per day. Phase two of

the project is expected to be completed by the end of 2018 and should add another 40,000 barrels per

day of capacity.

Buckeye has a high distribution, but the company’s coverage ratio narrowed last year. Buckeye

reported a distribution coverage ratio of 1.01 in the fourth quarter, and 1.0 for 2017. This means the

company generated exactly enough distributable cash flow to pay its distribution in 2017. In 2016, the

distribution ratio was a more comfortable 1.09.

Valuation

Buckeye currently has an 11.4% distribution yield. This compares favorably to the partnership’s

average distribution yield of approximately 7% over the last decade.

With a low valuation and extremely high distribution yield, the total return potential for Buckeye is

quite attractive here. If the valuation multiple at least remains steady, and the company maintains its

current distribution, investors can earn total annual returns of 12%+, including modest DCF growth.

7

Energy Transfer Partners LP (ETP)

Key Statistics, Ratios, & Metrics Distribution Yield: 12.7% 10 Year Distribution Growth Rate: 14.6%





Energy Transfer Partners operates more than 71,000 miles of natural gas, natural gas liquids (NGL),

and crude and refined products pipelines across 36 U.S. states, among other related assets.

On February 21st, Energy Transfer released fourth-quarter and full-year earnings. Revenue came in at

$8.61 billion, up 32% year over year. Revenue easily topped analyst expectations, which called for

$7.99 billion. The fourth quarter was a very strong one for the company. Adjusted EBITDA totaled

$1.94 billion for the fourth quarter, up more than 30%, while distributable cash flow rose 25% from the

same quarter a year ago. Growth was primarily due to higher throughput volumes, and higher

commodity prices. Crude transportation volumes increased 36%, to 3.8 million barrels per day, while

crude terminal volumes increased 31%, to 2.1 million barrels per day. For the full year, adjusted

distributable cash flow (DCF)-per-unit increased 4.3% from 2016.


Energy Transfer Partners’ future growth will come mostly from new projects. One of the most

important projects for Energy Transfer Partners is the Rover project, of which the company owns 33%.

Rover is now capable of transporting more than 1.7 billion cubic feet per day, with the goal of total

storage capacity of 3.25 billion cubic feet per day by the second quarter of 2018. Separately, Energy

Transfer is making progress with its assets in West Texas. The Red Bluff Express pipeline will consist

of 80 miles of pipeline and will have a capacity of at least 1.4 billion cubic feet per day with guaranteed

fee-based long-term commitments supporting the project. It is also expected to be online in the second

quarter of 2018. The company is expanding its Permian Express 3, Phase 1 of which was brought

online in the fourth quarter, with additional expansion expected later this year. This has the potential to

add an additional 200,000 barrels per day. In all, Energy Transfer expects $10 billion of additional

EBITDA growth, from new projects coming online by 2019.

Energy Transfer’s distribution is secure. The partnership’s distribution coverage ratio for the fourth

quarter of 2017 was 1.30x.

The balance sheet is strong enough for now, but some deleveraging would reduce Energy Transfer’s

risk profile. The partnership has an investment grade BBB- credit rating from Standard & Poor’s, and

a similar Baa2 rating from Moody’s. Energy Transfer expects to have a debt-to-adjusted EBITDA

ratio below 5.0 for 2018, due in large part to expected EBITDA growth.

Valuation

Energy Transfer generated adjusted DCF-per-unit of $3.60 in 2017. Based on this, the security trades

for a modest price-to-DCF ratio of less than 5.0, which is very low. This could lead to strong returns

going forward. If the price-to-DCF ratio expanded to 8.0, it would yield a 60% return. Plus, Energy

Transfer Partners has a current distribution yield of 12.7%. It would not be unreasonable to expect

15%+ total annual returns for Energy Transfer Partners, through a combination of DCF growth,

distributions, and expansion of the valuation multiple.

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Omega Healthcare Investors Inc. (OHI) Key Statistics, Ratios, & Metrics

Distribution Yield: 9.7% 10 Year Distribution Growth Rate: 8.6%

Most Recent Annual Distribution Increase: 6.4% Sector: Healthcare Real Estate

Distribution History: 15 years of increases Business Type: REIT



Omega Healthcare Investors is the largest publicly-traded REIT in the U.S. dedicated to owning and

operating skilled nursing facilities (SNFs). The trust’s portfolio is composed of approximately 85%

SNFs and 15% Senior Housing Facilities (SHFs). Omega operates ~1,000 properties in 42 states and

the United Kingdom. Omega leases these properties to 77 independent operators.

The past year was a difficult one for Omega. On February 13th, the company released fourth-quarter

and full-year earnings results. Adjusted Funds from Operation (FFO) declined 10% in the fourth

quarter, and 3.5% for 2017, on a year-over-year basis.

The company’s financial woes are due to tenant issues. More specifically, Omega recorded $198.2

million in impairment charges in 2017, related to two tenants, most notably Orianna Health Systems.

Because of Orianna’s poor financial performance, Omega had been closely monitoring this tenant and

eventually placed them on a cash basis for revenue recognition when their performance did not

improve. This means that now Omega does not record Orianna’s revenue until it is actually paid. It is

possible that Omega will reclaim some of the accounting write-offs if Orianna’s performance

improves. These issues seem short-term in nature, but we’ll be watching closely nonetheless.


The past year was challenging for Omega, and 2018 is expected to be difficult as well. Omega expects

adjusted FFO-per-share in a range of $2.96 to $3.06, compared with $3.30 in 2017. Fortunately, the

company continues to improve its property portfolio. Omega disposed of 35 non-strategic assets and is

evaluating over $300 million of assets to potentially sell or transition, in addition to the identified 22

facilities that are currently held for sale.

Despite Omega’s woes, the trust should deliver satisfactory growth over the long run, driven by

industry tailwinds. The aging U.S. population is a growth catalyst. The population of 85-year-old

people in the United States is expected to grow by ~50% in the next 15 years. As the 4th largest

publicly-traded healthcare REIT, Omega is well-positioned to benefit from this trend.

Omega continues to cover its distribution with ample cash flow. For example, in 2017 the company

generated adjusted FFO-per-share of $3.30. Even when including the potential FFO decline for 2018,

the forward distribution payout ratio is approximately 88%. This is a high distribution payout ratio, but

is manageable nevertheless, particularly if the company can return to growth moving forward.

Valuation

Omega Healthcare Investors’ average distribution yield over the past 5 years has been 6.4% and its

average distribution yield over the past 10 years has been 6.8%. With even low FFO growth rates

going forward, the trust could generate 10%+ total annual returns going forward, thanks in large part to

the current distribution yield of 9.7%. The elevated distribution yield, compared to Omega’s historical

average, indicates the security is undervalued. In addition, Omega trades for an attractive price-to-FFO

ratio of 9.1, which is fairly low. A low valuation and high distribution yield make Omega a compelling

buying opportunity for the long-term, high-yield income investor.

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Owens & Minor Inc. (OMI) Key Statistics, Ratios, & Metrics

Dividend Yield: 6.1% 10 Year Dividend Growth Rate: 11.5%

Most Recent Annual Dividend Increase: 0.8% Sector: Healthcare

Dividend History: 20 years of increases Business Type: Corporation

Ex-Dividend Date: 3/12/18 (estimated) Payment Date: 3/20/18 (estimated)


Owens & Minor is a healthcare logistics company that provides packaged healthcare products for

hospitals and other medical centers. It offers a range of services including distribution, transportation,

inventory management, and data analytics. Owens & Minor has annual revenue of $9 billion. The

company has a market capitalization of $1.0 billion and distributes ~220,000 different medical and

surgical supplies to ~4,400 hospital systems worldwide. Other customers include group purchasing

organizations, product manufacturers, the federal government, and at-home healthcare patients.

On February 14th, the company released fourth-quarter financial results. Earnings-per-share of $0.35

missed analyst expectations by $0.01. Quarterly revenue of $2.39 billion increased 0.8% year-over-

year and beat analyst expectations by $30 million. For the year, revenue declined 4.1%, to $9.32

billion. Analysts had expected annual revenue of $9.41 billion. Diluted earnings-per-share were $1.20,

or $1.61 on an adjusted basis. Analyst consensus for adjusted earnings-per-share was $1.78. Adjusted

earnings-per-share declined 26% for the year.


Despite the struggles last year, we believe Owens & Minor still has positive long-term growth

potential. Healthcare continues to be a growth industry, particularly since the U.S. is an aging

population. In addition, a big reason for Owens & Minor’s earnings decline last year, was elevated

investment to restore future growth. Its strategic growth initiatives include expansion into new

products and services, through acquisitions. For example, the company recently acquired Byram

Healthcare, a distributor of direct-to-patient medical supplies. This acquisition boosts Owens &

Minor’s position in at-home healthcare. It also will acquire the surgical and infection prevention

business of Halyard Health for approximately $710 million. The company expects the deal to close by

April 1st. This deal expands Owens & Minor’s portfolio, to include new medical supplies like

sterilization wraps, surgical drapes and gowns, facial protection, protective apparel, and medical exam

gloves. These acquisitions will help the company enter new, high-growth product markets.

While these growth investments will weigh on profitability in the short term, they should pay off over

time. Once its various acquisitions are completed, the company believes it can achieve a long-term

annual earnings growth rate of 8% to 10%.

Valuation

Based on 2018 guidance, Owens & Minor stock trades for a price-to-earnings (P/E) ratio of just 8.0. In

the past 10 years, the stock held an average P/E ratio of 18.2, which seems to be a reasonable estimate

of fair value. As a result, the stock appears to be significantly undervalued. An expanding valuation

would add several percentage points to annual returns. For example, a P/E ratio of 12, would result in

a 50% return. In addition, Owens & Minor has a dividend yield of 6.1%, and the company expects to

return to earnings growth. Because of earnings growth and dividends, the stock could return 10%+

each year, not including the impact of a rising valuation. The return potential for Owens & Minor is

highly attractive, thanks to the massive sell-off in the stock over the past year.

13

Enterprise Products Partners LP (EPD) Key Statistics, Ratios, & Metrics






Enterprise Products Partners operates storage and transportation assets, including nearly 50,000 miles

of natural gas, natural gas liquids, crude oil, and refined products pipelines. It has storage capacity of

more than 250 million barrels.

On January 29th, the company reported financial results for the fourth quarter. Revenue increased 30%

in the fourth quarter and beat analyst expectations by $1.35 billion. Adjusted EBITDA rose 14% in the

fourth quarter, and 6.8% in 2017. The best-performing segment was Crude Oil Pipelines & Services,

which grew operating margin by 34% in the fourth quarter. Distributable cash flow (DCF), excluding

proceeds from asset sales, increased 19% in the fourth quarter, and by 10% in 2017. DCF set a record

for the company in both the fourth quarter, and the full year. On a per-unit basis, DCF increased 6.6%

in 2017.


The most important growth catalysts for Enterprise Products Partners are new projects, and exports.

Enterprise Products has $5.5 billion of growth projects currently under construction. In 2018, it

expects to complete projects totaling $2.7 billion of capital investment.

Exports are a compelling growth catalyst, particularly for liquefied petroleum gas, or LPG. LPG

consists of gases like propane, butane, and methane. Demand for LPG is growing at a high rate across

the world, especially in emerging markets like China and India. The International Energy Agency

predicts demand for LPG in China and India will rise by 250,000 barrels-per-day and 350,000 barrels-

per-day, respectively. Enterprise has 1,150 LPG cargos contracted through 2020.

In terms of safety, Enterprise Products Partners is the safest MLP recommended in this newsletter. The

company has an investment-grade credit rating of BBB+ from Standard & Poor’s and Baa1 from

Moody’s, which are better than most MLPs. The distribution coverage ratio of 1.2x in 2017, represents

strong coverage. The strong balance sheet allows the company to self-fund a majority of its growth

capital expenditures. Enterprise Products Partners expects to deliver moderate distribution growth and

fully self-fund the equity portion of its growth capital investments in 2019.

Valuation

Enterprise Products Partners has a 5-year average distribution yield of 4.9%, and a 10-year average

distribution yield of 5.9%. It currently has a higher yield than both its 5-year and 10-year average.

This indicates the security is undervalued and is an appealing opportunity for income investors. The

company generated distributable cash flow per unit of $2.09 in 2017. As a result, the security trades

for a price-to-DCF ratio (an appropriate equivalent to earnings-per-share for an MLP) of 12.4.

Enterprise Products Partners seems to be fairly valued, and perhaps slightly undervalued. Still, total

returns could reach 10% annualized, due to its 6.6% distribution yield, and at least 4% annual DCF

growth. This is a reasonable DCF growth forecast, since the company exceeded this growth rate in

2017, and has several growth projects set for completion in 2018.

15

Holly Energy Partners LP (HEP)

Key Statistics, Ratios, & Metrics






Holly Energy Partners is a midstream energy master limited partnership. It operates ~3,400 pipeline

miles and 14 million barrels of storage capability. Holly Energy Partners’ pipelines and terminals are

located in Texas, New Mexico, Arizona, Washington, Idaho, Oklahoma, Utah, Nevada, Wyoming, and

Kansas. Refinery processing facilities are in Kansas and Utah. HollyFrontier Corporation (HFC) owns

the general partner of Holly Energy Partners and has a 35% limited partner stake in the MLP.

Last month, Holly Energy Partners reported (2/20/18) financial results for the fourth quarter of fiscal

2018. Net income attributable to Holly Energy Partners for the quarter was $86.1 million (or $0.96 per

diluted unit), which compares very favorably to last year’s figure. With that said, net income was

artificially inflated due to the remeasurement of fair values related to Holly’s acquisition of the

remaining interests in the SLC and Frontier pipelines. A more useful metric is distributable cash flow,

which increased to $65.5 million in the quarter - 12.0% higher than last year. Holly Energy Partners

also announced a 7.8% distribution increase, which marks its 53rd consecutive quarterly distribution

increase. Holly’s improved financial performance was due to higher pipeline throughputs as well as

the aforementioned pipeline acquisitions that were completed in the reporting period.


Holly Energy Partners will grow cash flow mainly through new projects. As mentioned, the company

recently acquired the remaining 50% interest in the pipeline operator Frontier Aspen, and a 75%

interest in the Salt Lake City (SLC) Pipeline for $250 million. The Frontier Aspen Pipeline is a 289-

mile crude oil pipeline from Wyoming to Utah. The SLC Pipeline is a 95-mile crude pipeline that

transports crude oil into Salt Lake City, from the Utah terminal of the Frontier Pipeline. The acquired

interest in both pipelines is expected to generate approximately $23 million in annual EBITDA.

The partnership’s new incentive distribution right (IDR) simplification plan is another growth catalyst.

Holly Energy Partners and its General Partner (GP) have agreed to eliminate the IDRs held by the GP.

Instead, the GP’s 2% general partner interest in Holly Energy Partners will be converted into a non-

economic interest, in exchange for approximately 36 million units. This plan should reduce the

partnership’s cost of capital and allow it to more effectively pursue growth opportunities.

Holly Energy Partners’ recent financial performance has been sufficient to cover its quarterly

distribution payments. The partnership operated with a distribution coverage ratio of 1.1x in the most

recent quarter. Looking ahead, the partnership expects to modestly grow its distribution while still

maintaining full coverage. In the partnership’s fourth quarter earnings release, the company’s Chief

Executive Officer stated, “we expect to continue to grow the distribution at a rate of 4% in 2018 while

maintaining an average coverage ratio of 1.0x for the year.”

Valuation

Holly Energy Partners traded at an average distribution yield of 6.5% over the last 5 years and 7.0%

over the last 10 years. The partnership’s current distribution yield of 8.9% indicates that it is

meaningfully undervalued at current prices.

17

Welltower Inc. (WELL)




Distribution History: Steady or increasing since ‘85 Business Type: REIT



Welltower is a healthcare-focused real estate investment trust (REIT) headquartered in Toledo, Ohio.

It invests alongside leading senior housing operators, post-acute providers, and broader healthcare

systems to acquire attractive properties in premier markets. Welltower has operations in the United

States, Canada, and the United Kingdom and trades with a market capitalization of $19.3 billion.

Last month, Welltower announced (2/22/18) financial results for the quarter ending December 31,

2017. The trust generated a net loss attributable to common unit holders of $0.30 per share and

normalized funds from operations (FFO) attributable to them of $1.02 per share (down from $1.10 in

the prior year’s period). For the twelve-month period, Welltower generated net income attributable to

common unit holders of $1.26 per share and normalized FFO attributable to common unit holders of

$4.21 per share (down from $4.55 in the prior year). The trust’s worsened financial performance

appears to be due to an increase in non-recurring expenses, such as losses on the extinguishment of

debt and provisions for loan losses.

The company also introduced financial guidance for fiscal 2018. The trust is expecting to generate net

income in a range of $2.38 to $2.48 per share and FFO attributable to common unit holders in the range

of $3.95 to $4.05 per share. While this FFO guidance is down slightly from 2017’s figure, the trust’s

distribution is still well-covered by cash flow and we remain bullish on long-term growth.

More recently, Welltower announced (2/16/18) that the company would be changing its stock market

ticker to WELL (from HCN previously). The change took effect at the end of February (2/28/18).

Before that Welltower announced (1/2/18) plans to acquire a portfolio of 4 rental continuing care

retirement communities (CCRC) in Washington D.C., Miami, and Charlottesville. For a price tag of

$368 million, Welltower is projected to receive a nominal one-year cap rate (net operating income

divided by purchase price) of 7%. The transaction is expected to close by the end of the first quarter.


Welltower’s most compelling growth prospect is the rising population of senior citizens, which are the

primary customers of the trust’s property operators. Welltower estimates the population of 85+ year

old people will double over the next 20 years.

Despite its recent decline in financial performance, Welltower’s distribution remains safe. Welltower

currently pays a quarterly distribution of $0.87 per unit and is anticipating 2018 FFO of $3.95 to $4.05

per share. Using the bottom of this guidance band ($3.95), the company is operating at a distribution

coverage ratio of 1.14 (equivalent to a cash flow payout ratio of 88%).

Valuation

Welltower traded at an average distribution yield of 4.9% over the last 5 years and 5.4% over the last

10 years. The company’s current distribution yield of 6.7% indicates that Welltower is undervalued at

current prices, likely due to the company’s weaker financial performance in recent reporting periods.

19

AmeriGas Partners LP (APU)



Most Recent Annual Distribution Increase: 1.1% Sector: Utilities




AmeriGas Partners is the largest propane distribution company in the United States, serving more than

2 million customers in all 50 states through approximately 1,900 distribution locations. Propane sales

account for nearly 90% of the company’s annual revenue, with related equipment and accessories

accounting for the remaining 10%. AmeriGas has a market capitalization of $3.8 billion. UGI

Corporation is AmeriGas’ general partner and also owns 26% of the partnership’s common units.

In January, AmeriGas reported (1/31/18) financial results for the first quarter of fiscal 2018. Revenue

of $787.3 million increased by 16.3% over the prior year’s period and beat analyst expectations by

$12.7 million. Adjusted EBITDA of $194.1 million rose 4.8%, compared with $185.1 million in last

year’s quarter. The year 2017 was a challenging one for the company. For the twelve-month period,

AmeriGas’ revenue increased by 6.3% but adjusted EBITDA of $551.3 million increased by just 1.5%.

Warmer-than-normal temperatures across the U.S. have negatively impacted demand for propane. In

the 2018 first quarter, temperatures were 1.4% warmer than normal.


Conditions should improve in 2018. The company’s three main growth catalysts are its recent cylinder

exchange program, customer account growth, and acquisitions – the last of which is perhaps the most

compelling opportunity for the partnership. AmeriGas made 5 bolt-on acquisitions in fiscal 2017 and

more than 80 acquisitions in the last decade. With that said, both other initiatives will also contribute

to growth. For example, in the first quarter, cylinder exchange volume increased 9% from the same

quarter a year ago, while national accounts volume increased 7% by adding 11 new customer accounts.

As mentioned, AmeriGas has struggled over the last several years as temperatures (when measured by

heating degree days) have been noticeably higher than normal. This has impacted the partnership’s

distribution safety: the partnership reported a payout ratio of 98% in the fiscal 2018 first quarter.

Importantly, though, AmeriGas has taken action to improve its balance sheet. The partnership

refinanced all of its long-term debt in fiscal 2017, which reduced its weighted-average interest rate by

approximately 100 basis points. More importantly, AmeriGas has entered into a standby equity

purchase agreement with UGI Corporation (its general partner) under which AmeriGas will sell UGI

up to $225 million of Class B common units. Under the terms of the agreement, AmeriGas must issue

UGI at least $50 million Class B units – which are convertible to normal common units at UGI’s option

after 5 years. This agreement provides additional liquidity to AmeriGas and gives it greater financial

flexibility during this challenging period of warm temperatures. Importantly, as a result of deliberate

refinancing actions, AmeriGas has no significant debt maturities until 2024.

Valuation

AmeriGas has traded at an average distribution yield of 8.0% over the last 5 years and 7.6% over the

last 10 years. The partnership’s current distribution yield of 9.2% indicates that it is meaningfully

undervalued at current prices, likely due to concerns about the impact of more high temperatures on the

company’s distribution safety.

21

TC PipeLines LP (TCP) Key Statistics, Ratios, & Metrics



Distribution History: Steady or increasing since ‘99 Business Type: MLP



TC PipeLines LP is a master limited partnership incorporated in Delaware that has interests in eight

federally-regulated U.S. interstate natural gas pipelines. The partnership’s assets serve markets in the

Western, Midwestern, and Northeastern United States. TransCanada Corp. (TRP) owns the general

partner of TC PipeLines and also has a 24% limited partner interest in the MLP. TC PipeLines has a

market capitalization of $3.4 billion and has increased its distribution in all but one year (2005) since

the partnership’s inception in 1999.

In February, TC PipeLines reported (2/23/18) financial results for the fourth quarter and full year of

fiscal 2017. In the quarter, TC PipeLines generated EBITDA of $117 million (up 8.3% from the $108

million reported in the prior year’s period) and distributable cash flow of $72 million (up 5.9% from

the $68 million reported in last year’s period). The partnership’s full-year financial performance was

not quite as strong. TC PipeLines generated full-year EBITDA of $445 million, which increased 2.8%

over last year’s figure, and distributable cash flow of $310 million, a modest decline of 1% from last

year’s $313 million. Although TC PipeLines’ fourth-quarter distribution coverage dipped to 0.97x, the

partnership’s full-year coverage ratio of 1.01x implies that the MLP’s distribution is presently secured

by its long-term cash flows. All said, the MLP’s performance is in-line with what we expect from high

–yield energy infrastructure partnerships. We expect a similar trend of modest growth moving

forward.


A key element of the future growth of TC PipeLines will be dropdown transactions of U.S. natural gas

pipelines from TransCanada (which owns the MLP’s general partner). Examples of such dropdown

transactions can be seen in the partnership’s most recent fiscal year. Last summer, TC PipeLines

closed (6/1/17) on the acquisitions of a 49% interest in the Iroquois Gas Transmission System and an

additional 12% interest in the Portland Natural Gas Transmission System. The purchase price was

$765 million, and this transaction allowed the MLP to leverage its relationship with TransCanada to

acquire more energy infrastructure assets in the United States. Additional dropdown transactions of a

similar nature are likely to occur in the future.

Like other midstream energy MLPs, TC PipeLines has an appealing level of cash flow certainty due to

the regulated rates on its pipelines – which are determined by the Federal Energy Regulatory

Commission (FERC). Including the distributions paid on TC PipeLines’ Class B units, the partnership

operated with a distribution coverage ratio of 1.01 in the most recent fiscal year. The MLP’s cash

flows are stable, but investors should keep in mind that the partnership has only a very small buffer in

its distribution coverage in the event that operational performance worsens moving forward.

Valuation

TC PipeLines has traded at an average distribution yield of 6.5% over the last 5 years and 7.0% over

the last 10 years. The partnership’s current distribution yield of 8.1% indicates that it is trading at a

perceptible discount to its normal valuation.

23

Senior Housing Properties Trust (SNH)




Distribution History: Steady or rising since 2000 Business Type: REIT



Senior Housing Properties Trust is a REIT that owns senior living communities, medical office and life

science properties, and wellness centers throughout the United States. The trust has a portfolio of more

than 430 properties, which includes approximately 300 senior living locations.

Senior Housing specifically focuses on private-pay properties with higher margins and stronger growth

potential. This is important because private-pay facilities help reduce government funding exposure.

Approximately 97% of the company’s net operating income is derived from private-pay sources.

In late February, Senior Housing reported (2/27/18) financial results for the fourth quarter of fiscal

2017. Results were worse than anticipated. Normalized funds from operations (FFO) of $59.2 million,

or $0.25 per diluted share, declined by 50% from the prior year’s figure of $118.6 million, or $0.50 per

diluted share. For the full-year period, Normalized FFO of $375.3 million ($1.58 per diluted share)

also declined from 2016’s figure of $446.4 million (or $1.88 per diluted share). Results were

negatively impacted by management fees. Senior Housing is an externally-managed REIT, which

means that it pays an outside management team to deal with tenants and care for its properties. In the

quarter, Senior Housing paid $33.7 million of business management incentive fee expenses related to

the trust’s outperformance over the SNL U.S. REIT Healthcare Index. Despite this operational decline,

the trust’s full-year funds from operations were sufficient to cover its quarterly distribution payments –

which will be the driver of the trust’s total returns given the security’s high distribution yield.


The key growth catalyst for Senior Housing Properties is the changing demographic landscape of the

United States population. We are an aging society with approximately 10,000 Baby Boomers turning

65 every day. The United States Census Bureau estimates the 85+ population is growing at a faster rate

than the broader population, which creates a long-term growth driver for the senior care industry.

Senior Housing reported normalized funds from operations of $1.58 for the 12-month period ending

December 31, 2017, and the trust’s current quarterly distribution payment is equivalent to full-year

distribution payments of $1.56. This implies a cash flow payout ratio of 99%. Senior Housing does

not have a significant buffer if the company’s performance deteriorates, but for the time being,

distributions are covered by Senior Housing’s cash flows.

Senior Housing Properties Trust has a credit rating of BBB- from Standard & Poor’s, the lowest rating

that is considered investment-grade. It is crucial for the trust to retain its investment-grade credit

rating, as a downgrade would place the organization in “junk” territory and meaningfully increase its

cost of capital. The trust has been selling properties (including a $368 million divestiture to fellow

newsletter recommendation Welltower in January) and using the proceeds to reduce leverage.

Valuation

Senior Housing traded at an average distribution yield of 7.7% over the last 5 years and 7.4% over the

last 10 years. The trust’s current distribution yield of 9.7% is providing a noticeable buying opportunity

for today’s investors.

25

Disclaimer

Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this newsletter should be construed as a recommendation to follow any investment strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements

or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Retirement/Sure Dividend has used

reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an

investment in securities. Past performance is not a guarantee of future performance.

Closing Thoughts – Why Taxes & Inflation Matter–

This month’s Closing Thoughts discuss both taxes and inflation. Both issues are sometimes

‘politicized.’ This can shut down rational thought on the matter. Regardless of your political party

preference, I encourage you readers to think about taxes and inflation from an investment rather

than a political standpoint.

Most investment returns are discussed and listed before taxes. Regardless of how much you like or

dislike taxes, they are a fact of life.

“…in this world, nothing can be said to be certain except death and taxes.”

- Benjamin Franklin

In the final analysis, it is after-tax yields and returns that matter. Dividends and distributions must

come from profits or cash flows. Pass through entities like MLPs and REITs avoid the double

taxation problem of Corporations. This makes them preferred income generating investments.

That’s why there are so many REITs and MLPs consistently in the Top 10 of this income-focused

Sure Retirement Newsletter.

U.S. investors (and especially corporations) received favorable tax news several months ago from

the Tax Cuts and Jobs Act. The maximum federal corporate tax rate was reduced from 35% down

to 21% - a windfall for U.S. Corporations. While corporations will benefit, REITs and MLPs are

still more efficient vehicles for returning actual money to unit holders.

Unfortunately, ‘regular’ taxes are not all that investors have to worry about. Inflation is a ‘secret’

tax that also eats away at real investing returns.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an

important part of the wealth of their citizens.”

- John Maynard Keynes

Inflation reduces purchasing power. $17.60 of today’s money goes as far as $1.00 did 100 years

ago. If your income from investments does not increase over time, you will lose purchasing power

on an absolute basis. The Federal Reserve targets 2% inflation over the long run. If things go

‘according to plan,’ purchasing power will erode. If history is any guide, inflation over the long

run is just as much a fact of life as taxes.

Using tax-favored securities (MPLs, REITs) and/or tax-favored accounts (IRAs, 401ks) combined

with investments likely to generate rising income (more than inflation, at minimum) help in

generating high and rising income after accounting for both taxes and inflation.

The next newsletter publishes on Sunday, April 8th, 2018.

26

Disclaimer

Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this newsletter should be construed as a recommendation to follow any investment strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements

or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Retirement/Sure Dividend has used

reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an

investment in securities. Past performance is not a guarantee of future performance.

List of Investments by Sector

Each of the securities with 4%+ yields in the Sure Dividend database are sorted by rank below in

order based on The 8 Rules of Dividend Investing (highest to lowest) based on its GICS sector.

Dividend or distribution yield is included next to each security’s ticker symbol.

Basic Materials 1. Westlake Chemical Partners LP (WLKP) - 6.5%

2. SunCoke Energy Partners LP (SXCP) - 12.1%

3. Enviva Partners LP (EVA) - 8.9%

4. Ciner Resources LP (CINR) - 8.2%

5. Compass Minerals Intl. Inc. (CMP) - 4.6%

Communication Services 1. Vodafone Grp. plc (VOD) - 5.8%

2. BCE Inc. (BCE) - 5.4%

3. AT&T Inc. (T) - 5.4%

4. Verizon Communications Inc. (VZ) - 4.8%

5. Consolidated Communications Hldgs. Inc. (CNSL) - 12.9%

6. CenturyLink Inc. (CTL) - 12.1%

7. IDT Corp. (IDT) - 6.1%

Consumer Cyclicals 1. GameStop Corp. (GME) - 9.7%

2. GUESS? Inc. (GES) - 6%

3. L Brands Inc. (LB) - 5.8%

4. Macy's Inc. (M) - 5.2%

5. Cedar Fair LP (FUN) - 5.4%

6. National CineMedia Inc. (NCMI) - 12.5%

7. Ford Motor Co. (F) - 5.7%

8. Bowl America Inc. (BWL.A) - 4.5%

9. Cato Corp./The (CATO) - 10.9%

10. New Media Inv. Grp. Inc. (NEWM) - 8.6%

11. General Motors Co. (GM) - 4%

12. Barnes & Noble Inc. (BKS) - 12.8%

13. Buckle Inc./The (BKE) - 5.1%

14. Gannett Co. Inc. (GCI) - 6.4%

Consumer Defensive 1. Altria Grp. Inc. (MO) - 4.3%

2. Universal Corp. (UVV) - 4.4%

3. Vector Grp. Ltd (VGR) - 7.6%

Energy 1. Buckeye Partners LP (BPL) - 11.7%

2. Energy Transfer Partners LP (ETP) - 12.9%

3. Enterprise Product Partners LP (EPD) - 6.8%

4. Holly Energy Partners LP (HEP) - 9%

5. TC PipeLines LP (TCP) - 8.2%

6. NuStar Energy LP (NS) - 22.1%

7. NuStar GP Holdings LLC (NSH) - 20.7%

8. Enbridge Inc. (ENB) - 6.6%

9. Royal Dutch Shell plc (RDS.A) - 6%

10. ONEOK Inc. (OKE) - 5.4%

11. Royal Dutch Shell plc (RDS.B) - 5.9%

12. Energy Transfer Equity LP (ETE) - 7.9%

13. Exxon Mobil Corp. (XOM) - 4.2%

14. Sunoco LP (SUN) - 12%

15. CrossAmerica Partners LP (CAPL) - 11.2%

16. Magellan Midstream Partners LP (MMP) - 5.9%

17. Western Gas Partners LP (WES) - 8.1%

18. Transmontaigne Partners LP (TLP) - 8.8%

19. Helmerich & Payne Inc. (HP) - 4.3%

20. Spectra Energy Partners LP (SEP) - 7.5%

21. EnLink Midstream Partners LP (ENLK) - 10.5%

22. Andeavor Logistics LP (ANDX) - 8.7%

23. Occidental Petroleum Corp. (OXY) - 4.9%

24. DCP Midstream LP (DCP) - 8.5%

25. Targa Resources Corp. (TRGP) - 8.1%

26. Delek Logistics Partners LP (DKL) - 10.3%

27. TOTAL S.A. (TOT) - 5.1%

28. Phillips 66 Partners LP (PSXP) - 5.4%

29. PBF Logistics LP (PBFX) - 9.7%

30. Western Gas Equity Partners LP (WGP) - 6.2%

31. EnLink Midstream LLC (ENLC) - 6.9%

32. Tallgrass Energy Partners LP (TEP) - 9.9%

33. BP plc (BP) - 6.1%

34. Sprague Resources LP (SRLP) - 10.9%

35. Summit Midstream Partners LP (SMLP) - 14.9%

36. MPLX LP (MPLX) - 7.1%

37. GasLog Partners LP (GLOP) - 8.9%

38. USA Compression Partners LP (USAC) - 11.8%

39. SemGroup Corp. (SEMG) - 8.9%

40. Green Plains Partners LP (GPP) - 10.5%

41. Vermilion Energy Inc. (VET) - 6.4%

27

42. Enable Midstream Partners LP (ENBL) - 8.9%

43. Cheniere Energy Partners LP (CQP) - 6.4%

44. Black Stone Minerals LP (BSM) - 7.3%

45. Williams Companies Inc./The (WMB) - 5%

Financial Services 1. Bank of Nova Scotia/The (BNS) - 4.2%

2. Canadian Imperial Bank of Commerce (CM) - 4.6%

3. Mercury General Corp. (MCY) - 5.4%

4. PennantPark Floating Rate Capital Ltd (PFLT) - 8.9%

5. Main Street Capital Corp. (MAIN) - 6.2%

6. Westpac Banking Corp. (WBK) - 6.2%

7. Hercules Capital Inc. (HTGC) - 10.2%

8. HSBC Holdings plc (HSBC) - 5.2%

9. Ares Capital Corp. (ARCC) - 9.6%

10. AmTrust Financial Srvcs. Inc. (AFSI) - 5.3%

11. Banco Latinoamericano de Comercio (BLX) - 5.5%

12. Gladstone Inv. Corp. (GAIN) - 7.5%

13. BGC Partners Inc. (BGCP) - 5.2%

14. Westwood Holdings Grp. Inc. (WHG) - 4.9%

15. Waddell & Reed Financial Inc. (WDR) - 5%

16. Golub Capital BDC Inc. (GBDC) - 7.1%

17. Artisan Partners Asset Mgmt. Inc. (APAM) - 7.2%

18. Goldman Sachs BDC Inc. (GSBD) - 9.2%

19. FS Inv. Corp. (FSIC) - 10.3%

20. New York Community Bancorp Inc. (NYCB) - 4.8%

21. Navient Corp. (NAVI) - 4.7%

Healthcare 1. Owens & Minor Inc. (OMI) - 6.2%

2. Patterson Companies Inc. (PDCO) - 4.2%

3. National Research Corp. (NRCIB) - 4.8%

Industrials 1. Macquarie Infra. Corp. (MIC) - 14.3%

2. R.R. Donnelley & Sons Co. (RRD) - 6.9%

3. Golar LNG Partners LP (GMLP) - 12.1%

4. Compass Diversified Holdings LLC (CODI) - 8.7%

5. Iron Mountain Inc. (IRM) - 7.2%

6. Nielsen Holdings plc (NLSN) - 4.2%

7. Höegh LNG Partners LP (HMLP) - 9.8%

8. Icahn Enterprises LP (IEP) - 11.3%

9. KNOT Offshore Partners LP (KNOP) - 10.5%

10. USD Partners LP (USDP) - 12.4%

11. Dynagas LNG Partners LP (DLNG) - 16.1%

12. Fortress Transport. & Infra. Investors LLC (FTAI) - 8.3%

13. Costamare Inc. (CMRE) - 6.4%

Real Estate 1. Omega Healthcare Investors Inc. (OHI) - 9.7%

2. Welltower Inc. (WELL) - 6.5%

3. Senior Housing Properties Trust (SNH) - 9.8%

4. HCP Inc. (HCP) - 6.5%

5. W.P. Carey Inc. (WPC) - 6.6%

6. Arbor Realty Trust Inc. (ABR) - 9.7%

7. Realty Income Corp. (O) - 5.2%

8. National Health Investors Inc. (NHI) - 5.9%

9. Starwood Property Trust Inc. (STWD) - 9.2%

10. Lexington Realty Trust (LXP) - 8.8%

11. Hospitality Properties Trust (HPT) - 8.4%

12. LTC Properties Inc. (LTC) - 5.8%

13. Tanger Factory Outlet Centers Inc. (SKT) - 6.2%

14. Taubman Centers Inc. (TCO) - 4.5%

15. EPR Properties (EPR) - 7.7%

16. Kimco Realty Corp. (KIM) - 7.4%

17. Simon Property Grp. Inc. (SPG) - 5%

18. Sabra Health Care REIT Inc. (SBRA) - 10%

19. National Retail Properties Inc. (NNN) - 4.9%

20. Urstadt Biddle Properties Inc. (UBA) - 5.9%

21. Mid-America Apartment Communities Inc. (MAA) - 4.2%

22. DDR Corp. (DDR) - 9.7%

23. Ventas, Inc. (VTR) - 6.3%

24. Select Income REIT (SIR) - 10.8%

25. Preferred Apartment Communities Inc. (APTS) - 7%

26. STAG Industrial Inc. (STAG) - 6%

27. Apollo Comml. Real Estate Finance Inc. (ARI) - 9.9%

28. One Liberty Properties Inc. (OLP) - 7.8%

29. The GEO Grp. Inc. (GEO) - 8.7%

30. New Residential Inv. Corp. (NRZ) - 12%

31. American Campus Communities Inc. (ACC) - 4.7%

32. Universal Health Realty Income Trust (UHT) - 4.5%

33. Macerich Co. (MAC) - 5%

34. Kite Realty Grp. Trust (KRG) - 8.2%

35. Host Hotels & Resorts Inc. (HST) - 4.3%

36. Ares Comml. Real Estate Corp. (ACRE) - 9.1%

37. VEREIT Inc. (VER) - 7.7%

38. Life Storage Inc. (LSI) - 4.9%

39. Chesapeake Lodging Trust (CHSP) - 6%

40. Urstadt Biddle Properties Inc. (UBP) - 6%

41. Brixmor Property Grp. Inc. (BRX) - 6.9%

42. CorEnergy Infra. Trust Inc. (CORR) - 8.1%

43. Brookfield Property Partners LP (BPY) - 6.1%

44. Medical Properties Trust Inc. (MPW) - 7.7%

45. Hannon Armstrong Sust. Infra. Capital Inc. (HASI) - 7.2%

46. Gladstone Comml. Corp. (GOOD) - 8.5%

47. Government Properties Income Trust (GOV) - 12.4%

48. Ryman Hospitality Properties Inc. (RHP) - 4.5%

49. Chatham Lodging Trust (CLDT) - 7%

50. GGP Inc. (GGP) - 4.2%

51. Armada Hoffler Properties Inc. (AHH) - 5.9%

52. Landmark Infra. Partners LP (LMRK) - 8.9%

53. Pebblebrook Hotel Trust (PEB) - 4.4%

54. Spirit Realty Capital Inc. (SRC) - 8.9%

55. Pennsylvania Real Estate Inv. Trust (PEI) - 8.3%

56. Community Healthcare Trust Inc. (CHCT) - 6.4%

57. RLJ Lodging Trust (RLJ) - 5%

58. Granite Real Estate Inv. Trust (GRP.U) - 5.5%

59. Hersha Hospitality Trust (HT) - 6.5%

60. Brandywine Realty Trust (BDN) - 4.4%

61. Redwood Trust Inc. (RWT) - 7.4%

62. MGM Growth Properties LLC (MGP) - 6.3%

63. InfraREIT Inc. (HIFR) - 5.1%

64. Global Net Lease Inc. (GNL) - 12.2%

28

65. City Office REIT Inc. (CIO) - 8.5%

66. LaSalle Hotel Properties (LHO) - 6.9%

67. Xenia Hotels & Resorts Inc. (XHR) - 5.5%

68. Ashford Hospitality Trust Inc. (AHT) - 7.5%

69. Independence Realty Trust Inc. (IRT) - 8.4%

70. Apple Hospitality REIT Inc. (APLE) - 7%

71. New Senior Inv. Grp. Inc. (SNR) - 12.9%

72. Northstar Realty Europe Corp. (NRE) - 5.8%

73. Uniti Grp. Inc. (UNIT) - 14.8%

74. Outfront Media Inc. (OUT) - 7.6%

75. Franklin Street Properties Corp. (FSP) - 9.2%

Technology 1. Seagate Technology plc (STX) - 4.3%

Utilities 1. AmeriGas Partners LP (APU) - 9.2%

2. Southern Co. (SO) - 5.3%

3. Dominion Energy Inc./VA (D) - 4.6%

4. South Jersey Industries Inc. (SJI) - 4.2%

5. PPL Corp. (PPL) - 5.9%

6. OGE Energy Corp. (OGE) - 4.3%

7. Brookfield Renewable Partners LP (BEP) - 6.5%

8. CenterPoint Energy Inc. (CNP) - 4.1%

9. Duke Energy Corp. (DUK) - 4.7%

10. SCANA Corp. (SCG) - 6%

11. Pattern Energy Grp. Inc. (PEGI) - 9.5%

12. NorthWestern Corp. (NWE) - 4.3%

13. Edison Intl. (EIX) - 4.1%

14. NRG Yield Inc. (NYLD.A) - 7.4%

15. Entergy Corp. (ETR) - 4.6%

16. AES Corp./The (AES) - 4.8%

17. 8point3 Energy Partners LP (CAFD) - 9.2%

18. NRG Yield Inc. (NYLD) - 7.2%

19. FirstEnergy Corp. (FE) - 4.5%

29

This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

List of Investments by Rank

Each of the securities with 4%+ yields in the Sure Dividend database are sorted by

rank below in order based on The 8 Rules of Dividend Investing (highest to lowest).

Dividend or distribution yield is included next to each security’s ticker symbol. 1. Buckeye Partners LP (BPL) - 11.7%

2. Energy Transfer Partners LP (ETP) - 12.9%

3. Omega Healthcare Investors Inc. (OHI) - 9.7%

4. Owens & Minor Inc. (OMI) - 6.2%

5. Enterprise Product Partners LP (EPD) - 6.8%

6. Holly Energy Partners LP (HEP) - 9%

7. Welltower Inc. (WELL) - 6.5%

8. AmeriGas Partners LP (APU) - 9.2%

9. TC PipeLines LP (TCP) - 8.2%

10. Senior Housing Properties Trust (SNH) - 9.8%

11. NuStar Energy LP (NS) - 22.1%

12. NuStar GP Holdings LLC (NSH) - 20.7%

13. Altria Grp. Inc. (MO) - 4.3%

14. Vodafone Grp. plc (VOD) - 5.8%

15. Macquarie Infra. Corp. (MIC) - 14.3%

16. Enbridge Inc. (ENB) - 6.6%

17. Royal Dutch Shell plc (RDS.A) - 6%

18. BCE Inc. (BCE) - 5.4%

19. Bank of Nova Scotia/The (BNS) - 4.2%

20. ONEOK Inc. (OKE) - 5.4%

21. HCP Inc. (HCP) - 6.5%

22. Southern Co. (SO) - 5.3%

23. Royal Dutch Shell plc (RDS.B) - 5.9%

24. Dominion Energy Inc./VA (D) - 4.6%

25. W.P. Carey Inc. (WPC) - 6.6%

26. Universal Corp. (UVV) - 4.4%

27. Energy Transfer Equity LP (ETE) - 7.9%

28. Exxon Mobil Corp. (XOM) - 4.2%

29. Arbor Realty Trust Inc. (ABR) - 9.7%

30. Sunoco LP (SUN) - 12%

31. Vector Grp. Ltd (VGR) - 7.6%

32. AT&T Inc. (T) - 5.4%

33. Realty Income Corp. (O) - 5.2%

34. South Jersey Industries Inc. (SJI) - 4.2%

35. R.R. Donnelley & Sons Co. (RRD) - 6.9%

36. National Health Investors Inc. (NHI) - 5.9%

37. Starwood Property Trust Inc. (STWD) - 9.2%

38. CrossAmerica Partners LP (CAPL) - 11.2%

39. PPL Corp. (PPL) - 5.9%

40. Golar LNG Partners LP (GMLP) - 12.1%

41. Lexington Realty Trust (LXP) - 8.8%

42. Canadian Imperial Bank of Commerce (CM) - 4.6%

43. Magellan Midstream Partners LP (MMP) - 5.9%

44. OGE Energy Corp. (OGE) - 4.3%

45. Brookfield Renewable Partners LP (BEP) - 6.5%

46. Western Gas Partners LP (WES) - 8.1%

47. CenterPoint Energy Inc. (CNP) - 4.1%

48. Hospitality Properties Trust (HPT) - 8.4%

49. LTC Properties Inc. (LTC) - 5.8%

50. Tanger Factory Outlet Centers Inc. (SKT) - 6.2%

51. GameStop Corp. (GME) - 9.7%

52. Duke Energy Corp. (DUK) - 4.7%

53. Transmontaigne Partners LP (TLP) - 8.8%

54. Patterson Companies Inc. (PDCO) - 4.2%

55. SCANA Corp. (SCG) - 6%

56. Verizon Communications Inc. (VZ) - 4.8%

57. GUESS? Inc. (GES) - 6%

58. Taubman Centers Inc. (TCO) - 4.5%

59. EPR Properties (EPR) - 7.7%

60. Kimco Realty Corp. (KIM) - 7.4%

61. Compass Diversified Holdings LLC (CODI) - 8.7%

62. Simon Property Grp. Inc. (SPG) - 5%

63. L Brands Inc. (LB) - 5.8%

64. Helmerich & Payne Inc. (HP) - 4.3%

65. Mercury General Corp. (MCY) - 5.4%

66. Sabra Health Care REIT Inc. (SBRA) - 10%

67. PennantPark Floating Rate Capital Ltd (PFLT) - 8.9%

68. Macy's Inc. (M) - 5.2%

69. Main Street Capital Corp. (MAIN) - 6.2%

70. Spectra Energy Partners LP (SEP) - 7.5%

71. National Retail Properties Inc. (NNN) - 4.9%

72. Pattern Energy Grp. Inc. (PEGI) - 9.5%

73. Cedar Fair LP (FUN) - 5.4%

74. Urstadt Biddle Properties Inc. (UBA) - 5.9%

75. EnLink Midstream Partners LP (ENLK) - 10.5%

76. Andeavor Logistics LP (ANDX) - 8.7%

77. Mid-America Apartment Communities Inc. (MAA) - 4.2%

78. DDR Corp. (DDR) - 9.7%

79. Occidental Petroleum Corp. (OXY) - 4.9%

80. Iron Mountain Inc. (IRM) - 7.2%

81. NorthWestern Corp. (NWE) - 4.3%

82. Ventas, Inc. (VTR) - 6.3%

83. Select Income REIT (SIR) - 10.8%

84. Edison Intl. (EIX) - 4.1%

85. Westpac Banking Corp. (WBK) - 6.2%

86. Preferred Apartment Communities Inc. (APTS) - 7%

87. NRG Yield Inc. (NYLD.A) - 7.4%

88. STAG Industrial Inc. (STAG) - 6%

89. DCP Midstream LP (DCP) - 8.5%

90. Hercules Capital Inc. (HTGC) - 10.2%

91. Targa Resources Corp. (TRGP) - 8.1%

92. Apollo Comml. Real Estate Finance Inc. (ARI) - 9.9%

93. Delek Logistics Partners LP (DKL) - 10.3%

94. TOTAL S.A. (TOT) - 5.1%

30


95. Phillips 66 Partners LP (PSXP) - 5.4%

96. Westlake Chemical Partners LP (WLKP) - 6.5%

97. One Liberty Properties Inc. (OLP) - 7.8%

98. The GEO Grp. Inc. (GEO) - 8.7%

99. New Residential Inv. Corp. (NRZ) - 12%

100. PBF Logistics LP (PBFX) - 9.7%

101. American Campus Communities Inc. (ACC) - 4.7%

102. Universal Health Realty Income Trust (UHT) - 4.5%

103. Macerich Co. (MAC) - 5%

104. National CineMedia Inc. (NCMI) - 12.5%

105. Western Gas Equity Partners LP (WGP) - 6.2%

106. Entergy Corp. (ETR) - 4.6%

107. EnLink Midstream LLC (ENLC) - 6.9%

108. HSBC Holdings plc (HSBC) - 5.2%

109. Kite Realty Grp. Trust (KRG) - 8.2%

110. Host Hotels & Resorts Inc. (HST) - 4.3%

111. Ares Capital Corp. (ARCC) - 9.6%

112. Nielsen Holdings plc (NLSN) - 4.2%

113. Ares Comml. Real Estate Corp. (ACRE) - 9.1%

114. Höegh LNG Partners LP (HMLP) - 9.8%

115. VEREIT Inc. (VER) - 7.7%

116. Life Storage Inc. (LSI) - 4.9%

117. AES Corp./The (AES) - 4.8%

118. Chesapeake Lodging Trust (CHSP) - 6%

119. AmTrust Financial Srvcs. Inc. (AFSI) - 5.3%

120. Urstadt Biddle Properties Inc. (UBP) - 6%

121. Seagate Technology plc (STX) - 4.3%

122. Brixmor Property Grp. Inc. (BRX) - 6.9%

123. Tallgrass Energy Partners LP (TEP) - 9.9%

124. CorEnergy Infra. Trust Inc. (CORR) - 8.1%

125. BP plc (BP) - 6.1%

126. Brookfield Property Partners LP (BPY) - 6.1%

127. Banco Latinoamericano de Comercio (BLX) - 5.5%

128. Medical Properties Trust Inc. (MPW) - 7.7%

129. Gladstone Inv. Corp. (GAIN) - 7.5%

130. Hannon Armstrong Sust. Infra. Capital Inc. (HASI) - 7.2%

131. Sprague Resources LP (SRLP) - 10.9%

132. BGC Partners Inc. (BGCP) - 5.2%

133. 8point3 Energy Partners LP (CAFD) - 9.2%

134. Icahn Enterprises LP (IEP) - 11.3%

135. SunCoke Energy Partners LP (SXCP) - 12.1%

136. Gladstone Comml. Corp. (GOOD) - 8.5%

137. Government Properties Income Trust (GOV) - 12.4%

138. Westwood Holdings Grp. Inc. (WHG) - 4.9%

139. Ryman Hospitality Properties Inc. (RHP) - 4.5%

140. Chatham Lodging Trust (CLDT) - 7%

141. Summit Midstream Partners LP (SMLP) - 14.9%

142. GGP Inc. (GGP) - 4.2%

143. Armada Hoffler Properties Inc. (AHH) - 5.9%

144. Landmark Infra. Partners LP (LMRK) - 8.9%

145. MPLX LP (MPLX) - 7.1%

146. KNOT Offshore Partners LP (KNOP) - 10.5%

147. USD Partners LP (USDP) - 12.4%

148. Ford Motor Co. (F) - 5.7%

149. GasLog Partners LP (GLOP) - 8.9%

150. Pebblebrook Hotel Trust (PEB) - 4.4%

151. Spirit Realty Capital Inc. (SRC) - 8.9%

152. Pennsylvania Real Estate Inv. Trust (PEI) - 8.3%

153. USA Compression Partners LP (USAC) - 11.8%

154. Enviva Partners LP (EVA) - 8.9%

155. SemGroup Corp. (SEMG) - 8.9%

156. Waddell & Reed Financial Inc. (WDR) - 5%

157. Green Plains Partners LP (GPP) - 10.5%

158. Community Healthcare Trust Inc. (CHCT) - 6.4%

159. NRG Yield Inc. (NYLD) - 7.2%

160. Ciner Resources LP (CINR) - 8.2%

161. RLJ Lodging Trust (RLJ) - 5%

162. Bowl America Inc. (BWL.A) - 4.5%

163. Granite Real Estate Inv. Trust (GRP.U) - 5.5%

164. Cato Corp./The (CATO) - 10.9%

165. Hersha Hospitality Trust (HT) - 6.5%

166. New Media Inv. Grp. Inc. (NEWM) - 8.6%

167. Vermilion Energy Inc. (VET) - 6.4%

168. General Motors Co. (GM) - 4%

169. Brandywine Realty Trust (BDN) - 4.4%

170. Golub Capital BDC Inc. (GBDC) - 7.1%

171. Redwood Trust Inc. (RWT) - 7.4%

172. MGM Growth Properties LLC (MGP) - 6.3%

173. InfraREIT Inc. (HIFR) - 5.1%

174. Enable Midstream Partners LP (ENBL) - 8.9%

175. Artisan Partners Asset Mgmt. Inc. (APAM) - 7.2%

176. Global Net Lease Inc. (GNL) - 12.2%

177. Goldman Sachs BDC Inc. (GSBD) - 9.2%

178. City Office REIT Inc. (CIO) - 8.5%

179. LaSalle Hotel Properties (LHO) - 6.9%

180. Dynagas LNG Partners LP (DLNG) - 16.1%

181. Xenia Hotels & Resorts Inc. (XHR) - 5.5%

182. Ashford Hospitality Trust Inc. (AHT) - 7.5%

183. Fortress Transport. & Infra. Investors LLC (FTAI) - 8.3%

184. Cheniere Energy Partners LP (CQP) - 6.4%

185. Independence Realty Trust Inc. (IRT) - 8.4%

186. Compass Minerals Intl. Inc. (CMP) - 4.6%

187. Apple Hospitality REIT Inc. (APLE) - 7%

188. New Senior Inv. Grp. Inc. (SNR) - 12.9%

189. Northstar Realty Europe Corp. (NRE) - 5.8%

190. Black Stone Minerals LP (BSM) - 7.3%

191. Barnes & Noble Inc. (BKS) - 12.8%

192. Uniti Grp. Inc. (UNIT) - 14.8%

193. Consolidated Communications Hldgs. Inc. (CNSL) - 12.9%

194. FirstEnergy Corp. (FE) - 4.5%

195. CenturyLink Inc. (CTL) - 12.1%

196. Williams Companies Inc./The (WMB) - 5%

197. Outfront Media Inc. (OUT) - 7.6%

198. FS Inv. Corp. (FSIC) - 10.3%

199. New York Community Bancorp Inc. (NYCB) - 4.8%

200. IDT Corp. (IDT) - 6.1%

201. National Research Corp. (NRCIB) - 4.8%

202. Franklin Street Properties Corp. (FSP) - 9.2%

203. Navient Corp. (NAVI) - 4.7%

204. Costamare Inc. (CMRE) - 6.4%

205. Buckle Inc./The (BKE) - 5.1%

206. Gannett Co. Inc. (GCI) - 6.4%

31


List of Past Recommendations & Ranking Criteria

The ranking criteria and requirements for The Sure Retirement Newsletter are derived from The

8 Rules of Dividend Investing.

The sell criteria are below:

• The security trades at 2/3 or less of historical average dividend or distribution yield

• Dividend or distribution is cut or eliminated (except in special situations)

Performance of securities currently in the Top 10 are shown below:

Name & Ticker Recommend Date Yield Total Return1

Buckeye Partners LP (BPL) November 2016 Hold -21.9%

Enterprise Products Part. (EPD) November 2016 Hold 12.9%

Omega Healthcare Inv. (OHI) November 2016 Hold -1.3%

Holly Energy Partners (HEP) December 2016 Hold -0.3%

TC PipeLines LP (TCP) December 2016 Hold 3.5%

Energy Transfer Partners (ETP)2 January 2017 Hold -15.2%

AmeriGas Partners LP (APU) January 2017 Hold -3.1%

Owens & Minor Inc. (OMI) November 2017 Hold -10.8%

Welltower Inc. (HCN) January 2018 Hold -13.3%

Senior Housing Prop. (SNH) February 2018 Hold -0.5%

Continue to the next page to see performance of past recommendations not currently in the Top

10, as well as sells and pending sells.

1 Total returns start with the market close price of the first trading day after the newsletter recommendation. Prior to

March 2018, this was the first trading day after the first Sunday of the month. As of March 2018, and after, this is

the first trading day after the second Sunday of the month. 2 Recommended as SXL which changed its ticker to ETP.

32


Past recommendations (which are holds, not sells) not currently in Top 10:

Name & Ticker Recommend Date Total Return3 Current Yield Sell Yield

AT&T Inc. (T) November 2016 6.8% 5.4% 3.6%

Urstadt Biddle Prop. (UBA) November 2016 -8.7% 5.9% 3.6%

Magellan Midstream (MMP) November 2016 2.2% 5.9% 3.4%

Spectra Energy Part. (SEP) November 2016 3.5% 7.5% 3.7%

Energy Transfer Eq. (ETE) November 2016 20.3% 7.6% 3.9%

Gladstone Inv. Corp. (GAIN) February 2017 27.4% 7.5% 6.7%

W.P. Carey Inc. (WPC) February 2017 4.9% 6.6% 4.0%

Sunoco LP (SUN) May 2017 0.0% 12.0% 5.3%

Kohl’s Corp. (KSS) May 2017 66.5% 3.5% 2.2%

Macy’s Inc. (M) May 2017 5.6% 5.2% 1.7%

Occidental Petroleum (OXY) June 2017 11.2% 4.9% 1.9%

Royal Dutch Shell (RDS.B) July 2017 19.1% 5.9% 3.8%

Vector Group Ltd (VGR) August 2017 9.7% 7.6% 5.1%

Target Corp. (TGT) November 2017 21.1% 3.6% 1.5%

ONEOK Inc. (OKE) January 2018 2.7% 5.4% 3.0%

Sells & pending sells are below:

Name & Ticker Recommend Date Status Total Return

Waddell & Reed Fin. Inc. (WDR) November 2016 Sold 11/6/17 34.4%

Genesis Energy LP (GEL) November 2016 See notes4 -29.9%

Suburban Propane Part. LP (SPH) July 2017 See notes 5 3.1%

3 Total returns start with the market close price of the first trading day after the newsletter recommendation. Prior to

March 2018, this was the first trading day after the first Sunday of the month. As of March 2018, and after, this is

the first trading day after the second Sunday of the month. 4 Sell at historical average yield of 6.5%, currently at 10.0% 5 Sell at historical average yield of 8.7%, currently at 10.1%

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Portfolio Building Guide

The process of building a high-yield dividend portfolio is straightforward: Each month invest

in the top ranked security in which you own the smallest dollar amount out of the Top 10.

Over time, you will build a well-diversified portfolio of quality businesses purchased when they

yield 4% or more. If your portfolio has 25% or more allocated to one sector, buy the highest

ranked stock not in that sector. Alternatively, the Top 10 list is also useful as an idea generation

tool for those with a different portfolio allocation plan.

Examples Portfolio 1 Portfolio 2

Ticker Name Amount Ticker Name Amount

BPL Buckeye Partners $ 1,002 BPL Buckeye Partners $ 4,374

ETP Energy Transfer Partners $ - ETP Energy Transfer Partners $ 4,878

OHI Omega Healthcare $ - OHI Omega Healthcare $ 5,374

OMI Owens & Minor $ - OMI Owens & Minor $ 4,353

EPD Enterprise Products $ - EPD Enterprise Products $ 7,312

HEP Holly Energy Partners $ - HEP Holly Energy Partners $ 2,799

WELL Welltower $ - WELL Welltower $ 2,952

APU AmeriGas Partners $ - APU AmeriGas Partners $ 6,660

TCP TC PipeLines $ - TCP TC PipeLines $ 2,367

SNH Senior Housing Proper. $ - SNH Senior Housing Proper. $ 2,818

- If you had portfolio 1, you would buy ETP, the top ranked security you own least.

- If you had portfolio 2, you would buy TCP, the top ranked security you own least.

If you have an existing portfolio or a large lump sum to invest, switch over to the Sure

Retirement strategy over 20 months. Each month, take 1/20 of your initial portfolio value, and

buy the top ranked security you own the least out of the Top 10 (if that sector makes up less than

25% of your portfolio). When you sell a security use the proceeds to purchase the top ranked

security you own the least.

This simple investing process will build a diversified portfolio of high-quality dividend or

distribution securities over a period of less than 2 years. There’s nothing magical about 20

months. A period of 15 months or 30 months will yield similar results.

If your portfolio grows too large to manage comfortably (for example, you are not comfortable

holding 40+ securities – which would happen after around 4 years of the Sure Dividend system),

you will need to sell holdings. I recommend eliminating positions that have the lowest yields.

You can combine recommendations from The Sure Retirement, Sure Dividend, and Sure

Dividend International Newsletters by targeting a specific yield for your overall portfolio. When

you need your portfolio yield to increase, invest from The Sure Retirement Newsletter. If less

yield is required (and growth is preferred), invest from The Sure Dividend Newsletter. The Sure

Dividend International Newsletter can be used for international diversification.

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34


Tax Guide There are 4 broad types of investment vehicles covered in The Sure Retirement Newsletter:

1. Corporations

2. Master Limited Partnerships (MLPs)

3. Real Estate Investment Trusts (REITs)

4. Business Development Companies (BDCs)

The organization form is important for tax purposes because it determines how efficiently a

company can return money to unit or shareholders. An example is below.

Imagine a company makes $10, pre-tax, and distributes 100% to investors. The image below

shows how much of the $10 would go to investors using standard assumptions for the three

investment vehicles:

Note: Tax treatment for BDCs and REITs is similar. BDCs have been omitted from the

images below because of this.

• $5.92 in after-tax income from Corporation

• $6.81 in after-tax income from REIT

• $7.41 in after-tax income from MLP

The image below gives an overview of the different organizational forms:

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Corporations Corporations are taxed on income at the corporate level. They then pay out this after-tax

income to shareholders. Shareholders are then taxed again at the individual level.

Note: The United States corporate tax rate (including the state and federal levels) is 26%

after the Tax Cuts and Jobs Act. The global average is 23%, for comparison.

Corporations issue a 1099 to track dividend payments to shareholders. They are the simplest

and most common type of investment. They are also the least tax-advantaged.

Given the choice, corporations should be held in a retirement account to minimize taxes. Of

course, owning them in a taxable account is fine, one will just be paying taxes on dividends

received. Capital gains taxes are only triggered when a common stock is sold, making it tax

advantageous to buy and hold.

Capital gains taxes are divided into two types: short-term and long-term. Short-term capital

gains tax applies to investments held for less than a year. The short-term capital gains rate is

your ordinary income tax rate. It ranges between 10% and 37% depending on your income

bracket.

Long-term capital gains apply to most types of investments (including Corporations, REITs,

and MLPs) held longer than 1 year. The maximum long-term capital gains tax rate is 20%.

The minimum is 0%. Most investors will fall into the 15% long-term capital gains tax

bracket.

Dividend taxes are also divided into two types: ordinary and qualified. Most dividends paid

from blue-chip dividend stocks are ‘qualified.’ The requirements for a dividend to be

classified as ‘qualified’ are below:

• The company must be a U.S. corporation, or a foreign corporation that readily trades

on major U.S. exchanges, or be incorporated in a U.S. territory.

• The investor must have held the stock for 60+ days before the ex-dividend date.

Qualified dividends are taxed at the same rate as long-term capital gains; between 0% and

20% (though most investors will be in the 15% bracket). Ordinary dividends are dividends

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that do not meet the criteria to be ‘qualified.’ Ordinary dividends are taxed at the ordinary

income tax rate.

Master Limited Partnerships (MLPs) MLPs are the most tax efficient vehicle for returning money to investors. They avoid the

double taxation issues of Corporations. MLPs are not taxed at the organization level.

Unfortunately, MLPs are also the most complicated.

Typically, somewhere around 80% to 90% of MLP distributions are considered a ‘return

of capital’ because of depreciation. You don’t pay taxes immediately on ‘return of

capital’ distributions.

Returns of capital reduce your cost basis in the MLP. You are not taxed until you sell the

units.

For example, imagine you buy 10 units of an MLP at $100 a unit for a total investment of

$1,000. Now imagine you hold for 5 years.

The MLP unit price has increased to $120. Your investment is now worth $1,200.

It also paid out $37.50 per unit in distributions over this time, with 80% of that being a

return of capital ($37.50 x 80% = $30 return of capital).

The 20% of distributions that were not returns of capital would be taxed at your ordinary

income tax rate, which is up to 37%. These taxes would be due the year they are accrued.

Your cost basis would be $700 (initial investment amount of $1,000 less return of capital

of $30 per unit or $300 total). The amount of long-term capital gains tax you owe

(assuming you are in the 20% tax bracket) is $100.

Math Behind Example: Sale price of $1,200 less cost basis of $700 = $500 in capital

gains. $500 in capital gains x 20% tax bracket = $100.

As a caveat, if the cost basis ever falls below 0 (which will only happen after holding for

around a decade or more), you will owe long-term capital gains tax on the amount the

cost basis is below 0 every year.

Return of capital and other issues discussed above do not matter when MLPs are held in a

retirement account.

There is a different issue with holding MLPs in a retirement account, however. This

includes 401(k), IRA, and Roth IRA accounts, among others.

When retirement plans conduct or invest in a business activity, they must file separate tax

forms to report Unrelated Business Income (UBI) and may owe Unrelated Business

Taxable Income (UBTI). UBTI tax brackets go up to 37% (the top personal rate).

MLPs issue K-1 forms for tax reporting. K-1s report business income, expense, and loss

to owners. Therefore, MLPs held in retirement accounts may still qualify for taxes.

37


If UBI for all holdings in your retirement account is over $1,000, you must have your

retirement account provider (typically, your brokerage) file Form 990-T. You will want

to file form 990-T as well if you have a UBI loss to get a loss carryforward for

subsequent tax years. Failure to file form 990-T and pay UBIT can lead to severe

penalties. Fortunately, UBIs are often negative. It is a fairly rare occurrence to owe

taxes on UBI.

The subject of MLP taxation can be complicated and confusing. Hiring a tax

professional to aid in preparing taxes is a viable option for dealing with the complexity.

The bottom line is this: MLPs are tax-advantaged vehicles that are suited for investors

looking for current income. It is fine to hold them in either taxable or non-taxable

(retirement) accounts. Since retirement accounts are already tax-deferred, holding MLPs

in taxable accounts allows you to ‘get credit’ for the full effects of their unique structure.

Real Estate Investment Trusts (REITs) Like MLPs, REITs avoid double taxation. REITs are not taxed at the organization level.

REITs are in between MLPs and Corporations in terms of both complexity and tax-

advantages. REITs are required to pay out 90%+ of their income.

REITs are organized as trusts. As a result, ‘shareholders’ are actually unit holders.

REITs issue 1099 forms (just like corporations) instead of K-1 forms (like MLPs do).

Unit holders receive distributions, not dividends (just like MLPs). REIT distributions fall

into three categories:

• Ordinary income

• Return of capital

• Capital gains

Ordinary income is taxed at your ordinary income tax rate; up to 37%. Return of capital

reduces your cost basis (just as it does with MLPs). Capital gains are taxed at either

short-term or long-term capital gains rate.

The percentage of distributions from these three sources varies by REIT. In general,

ordinary income tends to be the majority of the distribution. Expect around 70% of

distributions as ordinary income, 15% as a return of capital, and 15% as capital gains.

REITs are best suited for retirement accounts because the majority of their payments are

taxed as ordinary income. Retirement accounts remove this negative and make REITs

very tax advantageous.

This doesn’t mean you should never own a REIT in a taxable account. A good

investment is a good investment, regardless of tax issues. If you have the choice, REITs

should definitely be placed in a retirement account.

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Business Development Companies (BDCs) Much like REITs, business development companies must pay out 90%+ of their income

as distributions. Additionally, business development companies must derive 90% of their

gross income from interest, dividends, or capital gains on securities.

BDCs pay their distributions as a mix of:

• Ordinary income & non-qualified dividends

• Qualified dividends

• Return of capital

• Capital gains

Just as with MLPs, returns of capital reduce your tax basis. Qualified dividends and

long-term capital gains are taxed at lower rates, while ordinary income and non-qualified

dividends are taxed at your personal income tax bracket.

Unfortunately, 70% to 80% of BDC income is typically derived from ordinary income.

Because of this, they make excellent vehicles for tax-advantaged retirement accounts.

Please email us at [email protected] with any questions you have on taxes

regarding retirement accounts, MLPs, and REITs. Frequently asked questions will be

added to this tax guide.

As a newsletter provider, I can’t provide specific personal investment advice, only

general information.

39


Glossary of Common Terms & Acronyms

Adjusted Funds From Operations (AFFO): A term used to describe Funds From

Operations (FFO), plus non-recurring items that do not impact the long-term

fundamentals of the business. See FFO in this glossary for a more.

Cash Available for Distribution (CAD): This term is also referred to as funds available

for distribution (FAD). It is the cash available to be distributed to unitholders. It is most

commonly seen with REITs. CAD is calculated by subtracting recurring capital

expenditures from funds from operations.

Distributable Cash Flow (DCF): A non-GAAP (Generally Accepted Accounting

Principles) financial metric frequently utilized by Master Limited Partnerships as an

alternative to earnings-per-share. Expresses cash available for unitholder distributions,

after payments to the General Partner. Calculated by adding non-cash items, such as

depreciation and one-time expenses, to net income. Viewed as a better gauge of financial

health than earnings-per-share, as MLPs operate asset-heavy business models with

significant depreciation expense.

Dividend Yield: The annual dividend returns from an investment, expressed as a

percentage. The dividend yield is calculated from the annual dividend per share, divided

by the stock price per share. MLPs and REITs pay distributions, not dividends. The

distribution yield is used for them instead of the dividend yield.

Dividend Payout Ratio: The percentage of earnings paid to shareholders as a dividend.

The payout ratio is calculated from the annual dividend per share, divided by annual

earnings-per-share. For MLPs and REITs, this is typically expressed as the distribution

coverage ratio.

EBITDA: Earnings before interest, taxes, depreciation, and amortization. Used by

companies with high levels of depreciation and interest costs, such as MLPs, to indicate

the financial health of a business. A similar metric to operating cash flow. Frequently

used as part of leverage ratios such as debt-to-EBITDA.

Funds From Operations (FFO): A non-GAAP financial metric frequently utilized by

Real Estate Investment Trusts, as an alternative to earnings-per-share. FFO is calculated

by adding depreciation and amortization expenses to net income, minus any gains on

asset sales. REITs view FFO as a more accurate gauge of financial health, since

earnings-per-share are heavily impacted by depreciation and amortization expenses.

GAAP: Generally accepted accounting principles. These are legally required

standardized accounting rules and procedures used when preparing financial statements.

If you read a term in The Sure Retirement Newsletter not on this list with which you are

unfamiliar, please email [email protected]. We will explain the term and add it

to the glossary in next month’s edition.

March 2018 Edition - suredividend.com · Buckeye Partners LP ... (SNH) REIT $16 0.60 9.7% 99% 2.0%...

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