April 2018 Edition · Buckeye Partners LP ... (SNH) REIT $16 0.56 9.9% 99% 2.0% 0.19 Notes: The ‘Score’ column shows how close the composite rankings are between the top 10

Sure Retirement Newsletter

HIGH-YIELD, HIGH-QUALITY INVESTMENTS

April 2018 Edition

By Ben Reynolds, Nick McCullum, & Bob Ciura

Edited by Brad Beams

Published on April 8th, 2018

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Table of Contents

Opening Thoughts - Handling Market Volatility - .................................................................... 3

The Retirement Top 10 – April 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

TC PipeLines LP (TCP) ............................................................................................................ 11

Owens & Minor Inc. (OMI) ...................................................................................................... 13

Enterprise Products Partners LP (EPD) .................................................................................... 15

Holly Energy Partners LP (HEP) .............................................................................................. 17

Welltower Inc. (WELL) ............................................................................................................ 19

AmeriGas Partners LP (APU) ................................................................................................... 21

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

Special Recommendation: AT&T Inc. (T) .............................................................................. 25

Closing Thoughts – Don’t Let the Market Dictate Your Moves – ......................................... 27

List of Investments by Sector ..................................................................................................... 28

List of Investments by Rank ...................................................................................................... 31

List of Past Recommendations & Ranking Criteria ............................................................... 33

Portfolio Building Guide ............................................................................................................ 35

Examples ................................................................................................................................... 35

Tax Guide .................................................................................................................................... 36

Corporations .............................................................................................................................. 37

Master Limited Partnerships (MLPs)........................................................................................ 38

Real Estate Investment Trusts (REITs)..................................................................................... 39

Business Development Companies (BDCs) ............................................................................. 40

Glossary of Common Terms & Acronyms ............................................................................... 41

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Opening Thoughts - Handling Market Volatility -

The stock market’s volatility has increased significantly beginning in February after several years

of relative stability. The image below shows the change in the value of the VIX Index (which

gauges market volatility) over the last 5 years.

Source: Data from Yahoo! Finance

High volatility can ‘shake’ investors out of positions they otherwise wouldn’t sell. The stock

market is amazing in that it lets you and I invest in thousands of securities with the click of a

mouse. While easy trading is convenient, it can also result in unnecessary trades that negatively

impact returns.

Volatility creates the idea that you need to do something. After all, the market is moving around,

shouldn’t your account? The reality is that the real-world businesses that lay beneath stock prices

do not see their intrinsic value whip around like stock prices do.

Don’t let volatile markets or whatever political and/or financial news story of the day shake you out

of holdings that you would otherwise be happy with.

This holds even more so for high yield investors. The long-term returns of high yield securities

(like those recommended in Sure Retirement) will come primarily from dividends/distributions.

Stock market prices have virtually no effect on dividends/distributions. Tuning out the noise and

focusing on investment income remains an intelligent strategy for not reacting to market volatility.

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The Retirement Top 10 – April 2018

Name Type Price Score Yield Payout Growth Beta

Buckeye Partners LP (BPL) MLP $39 1.00 13.3% 100% 7.5% 2.21

Energy Transfer Partners (ETP) MLP $17 0.86 13.5% 83% 6.5% 1.83

Omega Healthcare (OHI) REIT $26 0.79 10.0% 88% 9.0% -0.33

TC PipeLines (TCP) MLP $32 0.76 12.4% 99% 6.0% 2.58

Owens & Minor (OMI) Stock $16 0.74 6.6% 65% 11.0% 1.89

Enterprise Products Part. (EPD) MLP $24 0.69 7.0% 83% 10.0% 1.19

Holly Energy Partners (HEP) MLP $28 0.60 9.3% 91% 6.0% 0.67

Welltower Inc. (WELL) REIT $55 0.58 6.4% 88% 5.0% 0.05

AmeriGas Partners (APU) MLP $40 0.58 9.5% 98% 2.5% 1.24

Senior Housing Prop. (SNH) REIT $16 0.56 9.9% 99% 2.0% 0.19

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.

Remarkably, no Top 10 securities have changed from last month’s newsletter. 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%

Dividend or Distribution Yield: 9.8%

Growth Rate: 6.6%

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

as of 4/5/18. Data elsewhere is from between market close 4/5/18 and market close 4/6/18.

This month’s top recommendation (BPL) is now priced at just $37.29 as of market close on 4/6/18,

making it an even better value than is listed in the Top 10 summary table above.

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Analysis of Top 10 Securities

Buckeye Partners LP (BPL)

Key Statistics, Ratios & Metrics Distribution Yield: 13.3% 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. It has approximately 6,000 miles of pipelines, and more than

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

Approximately 95% of EBITDA is derived from fee-based sources. Buckeye’s pipelines and terminals

are 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 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.

More recently, Buckeye stock declined due to the recent Federal Energy Regulatory Commission

(FERC) ruling, in which MLPs will no longer be allowed to recover an income tax allowance in cost-

of-service rates. This news added to the overall negative sentiment facing all MLPs indiscriminately;

however, Buckeye has very little exposure to cost of service pipelines. Buckeye management released

a press release reiterating it does not expect any material impact from the FERC decision. .

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 high-quality Permian Basin. 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 shortly is the Michigan/Ohio expansion project. Buckeye 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 is projected to add 40,000 barrels per day of capacity.

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.

Investors should closely monitor company reports to make sure the distribution remains covered.

Valuation

Buckeye units have declined in price in recent periods. Based on DCF-per-unit of $5.11, meaning the

stock trades for a price-to-DCF ratio of 7.4. This is a fairly low valuation, which indicates a high level

of negative sentiment, as does the 13%+ distribution yield. In the past five and ten years, Buckeye had

an average distribution yield of approximately 7%. Buckeye appears to be significantly undervalued.

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

quite attractive here.

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Energy Transfer Partners LP (ETP)

Key Statistics, Ratios & Metrics Distribution Yield: 13.5% 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. Energy Transfer Partners owns and

operates crude oil, natural gas liquids, natural gas, and refined product transportation and storage

assets. It also owns NGL fractionation assets.

On February 21st, Energy Transfer released full-year earnings. Revenue came in at $8.61 billion, up

32% year-over-year. The fourth quarter was a very strong one for the company. Adjusted EBITDA

totaled $1.94 billion in the 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.

More recently, Energy Transfer stock fell on news that the Federal Energy Regulatory Commission

will no longer allow MLPs to recover an income tax allowance in cost-of-service rates. All MLPs sold

off on the news, but Energy Transfer has stated that most of its rates are set by negotiated rate

agreements, and thus would not be subject to adjustment. As a result, we believe the FERC news is

immaterial for Energy Transfer investors.


Future DCF growth will be derived from new projects, such as the Rover project. Energy Transfer

Partners owns 33% of Rover, which 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.

Separately, Energy Transfer’s Red Bluff Express pipeline will have a capacity of at least 1.4 billion

cubic feet per day with guaranteed long-term commitments supporting the project. It is expected to be

online in the second quarter of 2018. In all, Energy Transfer Partners has $10 billion worth of new

projects coming online from mid-2017 through mid-2019 that should significantly boost growth.

It appears Energy Transfer’s distribution is secure, because the company has sufficient distribution

coverage. The Partnership’s distribution coverage ratio for the fourth quarter of 2017 was 1.30x. The

company expects not to need equity financing, at least through the middle of 2018. The balance sheet

is strong enough for now, but investors should closely monitor the company’s financial position

moving forward. Energy Transfer has an investment grade BBB- credit rating from Standard & Poor’s,

and a similar Baa2 rating from Moody’s. The company 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 stock trades for

a modest price-to-DCF ratio of just 4.6, which is very low. This indicates Energy Transfer is

significantly undervalued. Additionally, Energy Transfer has a distribution yield of 13.5%.

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Energy Transfer Partners (ETP) Dividend Yield History

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

Distribution Yield: 10.0% 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

Ex- Distribution Date: 4/30/18 (estimated) Payment Date: 5/15/18 (estimated)


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

operating skilled nursing facilities (SNFs). The split of the property portfolio is approximately 85%

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

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

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

year earnings results. Adjusted FFO declined 10% in the fourth quarter and 3.5% for 2017.

Omega recorded $198.2 million in impairment charges in 2017. These impairments were due to

problems related to two tenants, most notably Orianna Health Systems. More recently, Omega

announced on March 7th, that Orianna will pursue a significant restructuring, which includes certain

affiliates of Orianna declaring Chapter 11 bankruptcy. This is a concerning development, but it is not

unexpected. Omega issued a press release discussing the filing, and it reiterated that its rental yields

remain within expectations. Furthermore, the company does not believe the bankruptcy filing

materially affects the fair value of the facilities in question. And, Omega reiterated 2018 FFO

guidance. It does not expect further impairments in 2018 resulting from the bankruptcy filing.


It is evident that 2017 was a challenging year 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 has 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 10 years has been 6.8%. Even

with flat FFO going forward, the trust could generate 10% annual returns going forward, just from its

current 10% distribution yield. The elevated distribution yield, compared to Omega’s historical

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

FFO ratio of 8.8. A low valuation and high distribution yield make Omega a compelling buying

opportunity for long-term income investors in search of high yields.

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



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



TC PipeLines LP has interests in eight federally-regulated U.S. interstate natural gas pipelines. Its

assets serve markets in the West, Midwest, and Northeast U.S. The General Partner of TCP is

TransCanada Corp. (TRP), which also owns a 24% LP interest. TC PipeLines has a market

capitalization of $2.3 billion and has increased its distribution in all but one year (2005) since the

partnership’s inception in 1999.

On February 23rd, TC PipeLines reported fourth-quarter and full-year financial results. For the fourth

quarter, the company grew EBITDA by 8.3% to $117 million. Distributable cash flow (DCF)

increased 5.9%, to $72 million. For the full year, EBITDA increased 2.8%, while DCF declined 1%,

due primarily to increased maintenance expenditures from higher utilization. We expect a similar trend

of modest growth moving forward.

More recently, TC PipeLines stock fell on news that the Federal Energy Regulatory Commission will

no longer allow MLPs to recover an income tax allowance in cost-of-service rates. TC PipeLines was

among the hardest-hit MLPs from the news, even though roughly half of its network receives

negotiated service tolls, which are not subject to the agency ruling. In addition, TC Pipelines issued a

press release stating that the Partnership does not anticipate any material financial impacts to its natural

gas pipeline cost of service rates, at least in the near-term, because of the revised FERC tax policy.


For energy MLPs, growth is fueled mainly by placing new projects into service. A key element of TC

Pipelines’ growth will be drop-down transactions of U.S. natural gas pipelines from TRP. An example

came on June 1st, 2017 when TC PipeLines purchased a 49% interest in the Iroquois Gas Transmission

System, and an additional 12% interest in the Portland Natural Gas Transmission System. The cost of

the acquisitions was $765 million, which will allow the company to leverage its relationship with

TransCanada, to acquire additional energy infrastructure assets in the U.S.

In fiscal 2017 TC PipeLines had a distribution coverage ratio of 1.01x, meaning the company generated

1% more DCF than it needed to sustain the distribution payout. Distribution coverage eroded slightly

in the fourth quarter, to 0.97x. Cash flows are stable, but investors should keep in mind that the

distribution is barely covered. TC PipeLines has an investment grade BBB- credit rating from

Standard & Poor’s, with a stable outlook. Maintaining an investment grade credit rating is crucial for

an MLP to keep its cost of capital as low as possible, as raising outside capital is the primary way

MLPs finance growth projects.

Valuation

TC PipeLines traded at an average distribution yield of 6.5% over the past five years, and 7.0% over

the past 10 years. The current distribution yield of 12.4% is nearly double the five-year average. In

addition, TC PipeLines trades for a price-to-DCF ratio of just 6.9, which is very low. These indicators

suggest this MLP is significantly undervalued.

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TC PipeLines (TCP) Dividend Yield History

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

Dividend Yield: 6.6% 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: 6/13/18 (estimated) Payment Date: 6/30/18 (estimated)


Owens & Minor is a distribution company operating in the healthcare sector. It provides healthcare

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

transportation, inventory management, and data analytics. In all, Owens & Minor distributes

approximately 220,000 medical and surgical supplies to roughly 4,400 hospitals. Its other clients

include group purchasing organizations, product manufacturers, and the federal government.

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. 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, down 26% for the

year. Analyst consensus for adjusted earnings-per-share was $1.78.


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 expanding product and

service offerings through acquisitions.

For example, the company announced the acquisition of 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, which the company expects to close in April. 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.

Owens & Minor’s earnings-per-share will suffer in the short-term from investment spending, but the

long-term benefits are clear. The company believes it can achieve a long-term annual earnings growth

rate of 8% to 10% after the various acquisitions are completed.

Valuation

Consensus estimates call for earnings-per-share of $2.00 for Owens & Minor in 2018. As a result, the

stock trades for a price-to-earnings ratio of just 7.9. In the past 10 years, the stock has held an average

price-to-earnings ratio of 18.2, which seems to be a reasonable estimate of fair value. Owens & Minor

is significantly undervalued, given its future earnings growth potential. Thus, an expanding valuation

could add several percentage points to annual returns. For example, a price-to-earnings ratio of 12,

which would still be a modest valuation, would result in a 52% shareholder return. In addition, Owens

& Minor has a dividend yield of 6.6%. 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 irrational sell-off in the stock over the past year.

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Owens & Minor (OMI) Dividend Yield History

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






Enterprise Products Partners is an oil and gas MLP and the largest master limited partnership by market

capitalization. The partnership operates storage and transportation assets, including nearly 50,000

miles of natural gas, natural gas liquids, crude oil, and refined products pipelines; and 250 million

barrels of oil storage capacity.

In mid-March, Enterprise Products Partners’ publicly-traded common units experienced volatility after

the Federal Energy Regulatory Commission (FERC) announced (3/15/18) a policy change regarding

MLP’s operations. Partnerships that operated under cost of service rate agreements – where pipeline

fees are calculated based on the fees incurred to operate them – are no longer allowed to include an

income tax allowance in their fee calculations. Fortunately, it appears that this will not impact

Enterprise Products Partners in any material fashion. The partnership published a press release in

which its Chief Executive Officer stated “We do not expect the revisions to the FERC’s policy on the

recovery of income taxes to materially impact our earnings and cash flow. The cost-based tariff rates

that are in effect for all of our interstate pipelines are based on a cost of service for those pipelines

whereby the disallowance for the recovery of an income tax allowance will not have a material effect,

if any, to the posted tariffs.”

Previously, Enterprise Products Partners reported (1/29/18) financial results for the fourth quarter of

fiscal 2017. Revenue increased 30% in the quarter, while adjusted EBITDA increased by 14%.

Distributable cash flow increased by 19% in the quarter, and 10% in 2017, setting company records in

both reporting periods.


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

The partnership retained $867 million of distributable cash flow in 2017 and has $5.5 billion of growth

projects currently under construction.

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 a Baa1 rating from Moody’s,

better than most MLPs. In addition, the MLP has a reputation of being exceptionally well-managed.

This year’s ranking marked the second consecutive year in which Enterprise Products Partners won the

unanimous vote for the Institutional Investor All-America Executive Team for the MLP sector.

Valuation

Enterprise Products Partners has traded at an average distribution yield of 5.2% over the last 5 years

and an average distribution yield of 5.8% over the last 10 years. The partnership’s current distribution

yield of 7.0% indicates that it is meaningfully undervalued at current prices.

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Holly Energy Partners LP (HEP)

Key Statistics, Ratios, & Metrics






Holly Energy Partners is a midstream energy MLP with a market capitalization of $3 billion. The

partnership operates ~3,400 pipeline miles and 14 million barrels of storage capacity. Holly Energy

Partners’ pipelines and terminals are located in Texas, New Mexico, Arizona, Washington, Idaho,

Oklahoma, Utah, Nevada, Wyoming, and Kansas. HollyFrontier Corporation (HFC) owns the general

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

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

2017. Distributable cash flow increased by 12.0% year-on-year, and the partnership announced a 7.8%

distribution increased – its 53rd consecutive quarterly distribution increase. Holly Energy Partners’

improved performance was due to higher pipeline throughputs as well as several acquisitions, most

notably the purchase of the remaining interests in the Salt Lake City (SLC) and Frontier pipelines.

Looking ahead, Holly Energy Partners is scheduled to release first quarter financial results on May 1st

before the market’s open.


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

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

75% interest in the Salt Lake City 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.

Holly Energy Partners’ 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 Holly

Energy Partners’ 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, Holly Energy Partners’

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’ average distribution yield over the last 5 years has been 6.6% and over the last

10 years has been 7.0%. The partnership’s current distribution yield of 9.3% indicates that this MLP is

trading at a considerable discount to its long-term average valuation multiple.

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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 $19.8 billion.

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

2018. The trust generated a net loss attributable to common unit holders of $0.30 per share and

normalized funds from operations (FFO) 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 trust also introduced financial guidance for fiscal 2018. Welltower is expecting to generate 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 Welltower’s long-term growth.

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

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

Earlier in the year, Welltower announced (1/2/18) plans to acquire four rental continuing care

retirement communities (CCRCs) 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, who are the

primary customers of the trust’s property operator. 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 with an average distribution yield of 4.9% over the last 5 years and 5.4% over the last

10 years. The trust’s current distribution yield of 6.4% indicates that it is meaningfully undervalued

compared to its historical norm.

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Welltower (WELL) Dividend Yield History

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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 $3.7 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

increased by 16.3% over the prior year’s period and beat analyst expectations by $12.7 million.

Adjusted EBITDA rose 4.8%. 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 United Stated have negatively

impacted demand for propane. In the 2018 first quarter, temperatures were 1.4% warmer than normal.


For AmeriGas, conditions should improve in 2018. The partnership’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. AmeriGas made five 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 days1) have been significantly higher than normal. This has impacted the partnership’s

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

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 flexibility

during this challenging period of warm temperatures. Importantly, because of these deliberate

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

Valuation

AmeriGas traded with 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 9.5% shows that it is trading at a significant

discount to its normal valuation multiples.

1 The number of days that a day’s average temperature is below 65oF.

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AmeriGas Partners (APU) Dividend Yield History

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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 trusts’

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 that 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 the trust’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 7.8% over the last 5 years and 7.4% over the

last 10 years. The trust’s ~10% distribution yield shows its valuation is well below normal levels.

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Special Recommendation: AT&T Inc. (T)


Dividend Yield: 5.5% 10 Year Dividend Growth Rate: 2.3%

Most Recent Annual Dividend Increase: 2.0% Sector: Telecommunications

Dividend History: 33 years of consecutive increases Business Type: Corporation

Ex-Dividend Date: 4/9/18 Payment Date: 5/1/18


AT&T is a leading provider of communications and digital entertainment services in the United States

and the world. The company is the result of a dizzying array of mergers since it was split up in 1984

and today sports a market capitalization of $221 billion. AT&T’s only competitor of similar size is

Verizon Communications (VZ). The company generates more revenue than any other communications

company and employs more than 200,000 individuals in the United States alone.

In late January, AT&T reported (1/31/18) financial results for the fourth quarter of fiscal 2017.

Revenue fell to $41.7 billion from $41.8 billion in the prior year’s period. Negative revenue growth

was primarily attributable to declines in the company’s legacy businesses: wireline services, wireless

service revenues, and domestic video. On the bottom line, AT&T reported adjusted earnings-per-share

of $0.78, representing 18.2% growth over the $0.66 reported in the prior year’s period.

AT&T also provided financial guidance for fiscal 2018. The company is expecting capital

expenditures of $25 billion, or $23 billion net of expected FirstNet reimbursements and inclusive of $1

billion of incremental tax reform investments. AT&T is also expecting to generate free cash flow of

approximately $21 billion and adjusted earnings-per-share “in the $3.50 range.” All said, it was an

excellent quarter for this telecommunications giant.


AT&T’s adjusted earnings-per-share have grown steadily in the past decade as it has continued to grow

its international business, perform accretive acquisitions, and expand its financial margins.

Looking ahead, the company’s single largest near-term growth prospect is its pending merger with

Time Warner. This merger, if closed successfully, will create a new kind of media company that has

complete control over content creation and distribution. The merger has unfortunately been halted by a

lawsuit from the Department of Justice, and trial proceedings are ongoing. We believe there is a good

chance that the merger will close. The company stated in a press release that the lawsuit is a “radical

and inexplicable departure from decades of antitrust precedent.” Separately, AT&T’s CEO said, “the

best legal minds in the country agreed this deal would be approved.”

AT&T is likely the single safest stock available today with a yield above 5%. The company is on pace

for a dividend payout ratio of 57% using fiscal 2018 earnings guidance of $3.50 and its current

quarterly dividend payment of $0.50 per share. Moreover, the company’s long dividend history shows

that it is willing to prioritize rising dividend payments through a variety of operating environments.

Valuation

As mentioned, AT&T is expecting to generate adjusted earnings-per-share of about $3.50 in fiscal

2018. Using this earnings guidance, the company is trading at a price-to-earnings ratio of just 10.3.

For context, the company has traded at an average price-to-earnings ratio of 13.4 over the last decade.

AT&T is trading at a noticeable discount to its long-term average valuation multiple, creating a buying

opportunity for long-term, income-oriented investors.

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AT&T Inc. (T) Dividend Yield History

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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 – Don’t Let the Market Dictate Your Moves –

The opening thoughts in this newsletter discuss not trading because of market volatility. One of the

most frequent questions I get is something along the lines of:

“Should I invest when the market is overvalued?”

If you are buying a market fund, that’s certainly an interesting question. The Sure Retirement

Newsletter recommends individual securities not market funds. We don’t recommend buying

overvalued securities, whether the market is undervalued or overvalued. We recommend

undervalued (or sometimes fairly valued) securities. The overall market level may influence how

many securities are undervalued or overvalued, but there are nearly always some securities trading

at fair or better prices – even in an overvalued market.

We recommend investing with regular frequency if you are still saving or building a portfolio but

holding for the long-run if you are in the distribution phase of investing. This has little to do with

the overall market level.

When people ask about investing when the market is overvalued (and the market is overvalued

from a historical perspective), they are really asking about timing the market. They are asking if

they should wait ‘until the big crash’ and then go in.

And that sounds great. Who wouldn’t have wanted to get out of the market in 2007, and jump back

in during March of 2009?

Of course, in practice that is all but impossible to do. Maybe a few people got lucky and did it, but

you don’t hear from all the market timers that didn’t time things perfectly. Attempting to time the

market can cause you to miss serious upside.

The market was historically overvalued in 2011. It was more overvalued in 2013. It’s 2018 now –

and the market has been on a fantastic run. Not investing when there are bargains to be had

requires you to know when better investments will be available, and how much better the

investments will be. These aren’t things we can know as investors – perhaps psychics would have

better luck.

Waiting for ‘the right time’ puts off until tomorrow what should be done today. Looking at the

market with a macro lens can cause paralysis by analysis. On the other hand, one shouldn’t invest

in the market now (or at any time) unless he/she can tolerate market drawdowns, not sell when they

occur, and focus on investment income instead of stock prices.

The next newsletter publishes on Sunday, May 13th, 2018.

28

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 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) - 6.7%

2. SunCoke Energy Partners LP (SXCP) - 13.3%

3. Enviva Partners LP (EVA) - 8.6%

4. Ciner Resources LP (CINR) - 8.3%

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

Communication Services 1. Vodafone Grp. plc (VOD) - 6%

2. BCE Inc. (BCE) - 5.4%

3. AT&T Inc. (T) - 5.6%

4. Verizon Communications Inc. (VZ) - 4.9%

5. Consolidated Communications Hldgs. Inc. (CNSL) - 13.8%

6. CenturyLink Inc. (CTL) - 12.6%

7. IDT Corp. (IDT) - 6.2% Grp.

Consumer Cyclicals 1. Signet Jewelers Ltd (SIG) - 4%

2. GameStop Corp. (GME) - 11.4%

3. Meredith Corp. (MDP) - 4%

4. Macy's Inc. (M) - 5%

5. Cedar Fair LP (FUN) - 5.5%

6. L Brands Inc. (LB) - 6.3%

7. Las Vegas Sands Corp. (LVS) - 4.3%

8. Ford Motor Co. (F) - 5.3%

9. National CineMedia Inc. (NCMI) - 12.9%

10. Bowl America Inc. (BWL.A) - 4.6%

11. New Media Inv. Grp. Inc. (NEWM) - 8.5%

12. Cato Corp./The (CATO) - 8.3%

13. Barnes & Noble Inc. (BKS) - 11.3%

14. Gannett Co. Inc. (GCI) - 6.9%

15. Buckle Inc./The (BKE) - 4.4%

Consumer Defensive 1. Altria Grp. Inc. (MO) - 4.4%

2. Kraft-Heinz Co./The (KHC) - 4.1%

3. Vector Grp. Ltd (VGR) - 7.8%

4. Universal Corp. (UVV) - 4.4%

5. Philip Morris Intl. Inc. (PM) - 4.2%

6. General Mills Inc. (GIS) - 4.3%

Energy 1. Buckeye Partners LP (BPL) - 13.4%

2. Energy Transfer Partners LP (ETP) - 13.8%

3. TC PipeLines LP (TCP) - 12.2%

4. Enterprise Product Partners LP (EPD) - 7%

5. Holly Energy Partners LP (HEP) - 9.4%

6. NuStar Energy LP (NS) - 21.6%

7. NuStar GP Holdings LLC (NSH) - 19%

8. Enbridge Inc. (ENB) - 6.8%

9. Sunoco LP (SUN) - 12.7%

10. Royal Dutch Shell plc (RDS.A) - 5.9%

11. ONEOK Inc. (OKE) - 5.5%

12. Energy Transfer Equity LP (ETE) - 8.6%

13. Royal Dutch Shell plc (RDS.B) - 5.7%

14. Exxon Mobil Corp. (XOM) - 4.1%

15. CrossAmerica Partners LP (CAPL) - 12.2%

16. Magellan Midstream Partners LP (MMP) - 6.4%

17. Western Gas Partners LP (WES) - 8.6%

18. Transmontaigne Partners LP (TLP) - 8.6%

19. EnLink Midstream Partners LP (ENLK) - 11.6%

20. Helmerich & Payne Inc. (HP) - 4.2%

21. Spectra Energy Partners LP (SEP) - 8.7%

22. Andeavor Logistics LP (ANDX) - 8.9%

23. Occidental Petroleum Corp. (OXY) - 4.6%

24. DCP Midstream LP (DCP) - 8.9%

25. Targa Resources Corp. (TRGP) - 8.3%

26. Phillips 66 Partners LP (PSXP) - 5.7%

27. TOTAL S.A. (TOT) - 5%

28. PBF Logistics LP (PBFX) - 10%

29. EnLink Midstream LLC (ENLC) - 7.2%

30. Western Gas Equity Partners LP (WGP) - 6.7%

31. Delek Logistics Partners LP (DKL) - 10.2%

32. BP plc (BP) - 5.9%

33. Tallgrass Energy Partners LP (TEP) - 10.1%

34. Sprague Resources LP (SRLP) - 10.6%

35. Summit Midstream Partners LP (SMLP) - 16.6%

36. MPLX LP (MPLX) - 7.4%

37. USA Compression Partners LP (USAC) - 12.6%

38. GasLog Partners LP (GLOP) - 8.7%

39. SemGroup Corp. (SEMG) - 8.6%

40. Green Plains Partners LP (GPP) - 10.6%

41. Vermilion Energy Inc. (VET) - 6.3%

42. Enable Midstream Partners LP (ENBL) - 9.3%

43. Cheniere Energy Partners LP (CQP) - 6.9%

44. Black Stone Minerals LP (BSM) - 7.5%

45. Williams Companies Inc./The (WMB) - 5.6%

29


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

2. Canadian Imperial Bank of Commerce (CM) - 4.7%

3. Mercury General Corp. (MCY) - 5.5%

4. PennantPark Floating Rate Capital Ltd (PFLT) - 8.6%

5. Main Street Capital Corp. (MAIN) - 6.1%

6. Hercules Capital Inc. (HTGC) - 10.3%

7. Westpac Banking Corp. (WBK) - 6.5%

8. Ares Capital Corp. (ARCC) - 9.5%

9. HSBC Holdings plc (HSBC) - 5.4%

10. AmTrust Financial Srvcs. Inc. (AFSI) - 5.5%

11. Banco Latinoamericano de Comercio (BLX) - 5.4%

12. Gladstone Inv. Corp. (GAIN) - 7.6%

13. Westwood Holdings Grp. Inc. (WHG) - 4.8%

14. BGC Partners Inc. (BGCP) - 5.4%

15. Waddell & Reed Financial Inc. (WDR) - 4.9%

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

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

18. Goldman Sachs BDC Inc. (GSBD) - 9.5%

19. FS Inv. Corp. (FSIC) - 10.1%

20. New York Community Bancorp Inc. (NYCB) - 5.3%

21. Navient Corp. (NAVI) - 5%

Healthcare 1. Owens & Minor Inc. (OMI) - 6.6%

2. AbbVie Inc. (ABBV) - 4.1%

3. Patterson Companies Inc. (PDCO) - 4.7%

4. National Research Corp. (NRCIB) - 4.9%

Industrials 1. Macquarie Infra. Corp. (MIC) - 15%

2. R.R. Donnelley & Sons Co. (RRD) - 6.5%

3. Golar LNG Partners LP (GMLP) - 13.3%

4. Compass Diversified Holdings LLC (CODI) - 8.8%

5. Iron Mountain Inc. (IRM) - 7.1%

6. Nielsen Holdings plc (NLSN) - 4.3%

7. Höegh LNG Partners LP (HMLP) - 10.4%

8. Icahn Enterprises LP (IEP) - 11.6%

9. USD Partners LP (USDP) - 13.3%

10. KNOT Offshore Partners LP (KNOP) - 10.4%

11. Dynagas LNG Partners LP (DLNG) - 15.9%

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

13. Costamare Inc. (CMRE) - 6.2%

Real Estate 46. Omega Healthcare Investors Inc. (OHI) - 9.8%

47. Welltower Inc. (WELL) - 6.3%

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

49. HCP Inc. (HCP) - 6.3%

50. W.P. Carey Inc. (WPC) - 6.5%

51. Arbor Realty Trust Inc. (ABR) - 9.6%

52. Realty Income Corp. (O) - 5%

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

54. Lexington Realty Trust (LXP) - 8.9%

55. Starwood Property Trust Inc. (STWD) - 9.1%

56. LTC Properties Inc. (LTC) - 6%

57. Hospitality Properties Trust (HPT) - 8.3%

58. Tanger Factory Outlet Centers Inc. (SKT) - 6%

59. Kimco Realty Corp. (KIM) - 7.7%

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

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

62. Sabra Health Care REIT Inc. (SBRA) - 10.1%

63. EPR Properties (EPR) - 7.8%

64. National Retail Properties Inc. (NNN) - 4.8%

65. Urstadt Biddle Properties Inc. (UBA) - 5.5%

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

67. Select Income REIT (SIR) - 10.5%

68. DDR Corp. (DDR) - 10.1%

69. STAG Industrial Inc. (STAG) - 5.9%

70. Preferred Apartment Communities Inc. (APTS) - 6.8%

71. New Residential Inv. Corp. (NRZ) - 12.3%

72. Apollo Comml. Real Estate Finance Inc. (ARI) - 10.3%

73. Universal Health Realty Income Trust (UHT) - 4.4%

74. One Liberty Properties Inc. (OLP) - 7.6%

75. The GEO Grp. Inc. (GEO) - 9%

76. American Campus Communities Inc. (ACC) - 4.5%

77. Kite Realty Grp. Trust (KRG) - 8.1%

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

79. VEREIT Inc. (VER) - 7.9%

80. Macerich Co. (MAC) - 5.1%

81. Chesapeake Lodging Trust (CHSP) - 5.6%

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

83. Life Storage Inc. (LSI) - 4.7%

84. Urstadt Biddle Properties Inc. (UBP) - 5.7%

85. Brixmor Property Grp. Inc. (BRX) - 7.2%

86. CorEnergy Infra. Trust Inc. (CORR) - 8%

87. Hannon Armstrong Sust. Infra. Capital Inc. (HASI) - 6.9%

88. Medical Properties Trust Inc. (MPW) - 7.8%

89. Brookfield Property Partners LP (BPY) - 6.6%

90. GGP Inc. (GGP) - 4.3%

91. Ryman Hospitality Properties Inc. (RHP) - 4.4%

92. Gladstone Comml. Corp. (GOOD) - 8.6%

93. Chatham Lodging Trust (CLDT) - 6.8%

94. Armada Hoffler Properties Inc. (AHH) - 5.8%

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

96. Spirit Realty Capital Inc. (SRC) - 9%

97. RLJ Lodging Trust (RLJ) - 6.5%

98. Government Properties Income Trust (GOV) - 13.2%

99. Pennsylvania Real Estate Inv. Trust (PEI) - 8.5%

100. Community Healthcare Trust Inc. (CHCT) - 6.2%

101. Pebblebrook Hotel Trust (PEB) - 4.5%

102. Hersha Hospitality Trust (HT) - 6.1%

103. Granite Real Estate Inv. Trust (GRP.U) - 5.3%

104. Brandywine Realty Trust (BDN) - 4.6%

105. Redwood Trust Inc. (RWT) - 7.2%

106. City Office REIT Inc. (CIO) - 7.9%

107. Ashford Hospitality Trust Inc. (AHT) - 7.2%

108. InfraREIT Inc. (HIFR) - 5%

109. MGM Growth Properties LLC (MGP) - 6.5%

110. Global Net Lease Inc. (GNL) - 12.1%

111. Xenia Hotels & Resorts Inc. (XHR) - 5.4%

112. Apple Hospitality REIT Inc. (APLE) - 6.8%

113. Northstar Realty Europe Corp. (NRE) - 4.6%

114. Independence Realty Trust Inc. (IRT) - 7.8%

30


115. LaSalle Hotel Properties (LHO) - 6.1%

116. New Senior Inv. Grp. Inc. (SNR) - 12.7%

117. Uniti Grp. Inc. (UNIT) - 14.9%

118. Outfront Media Inc. (OUT) - 7.7%

119. Franklin Street Properties Corp. (FSP) - 9%

Technology 1. QUALCOMM Inc. (QCOM) - 4.2%

2. Seagate Technology plc (STX) - 4.3%

Utilities 1. AmeriGas Partners LP (APU) - 9.5%

2. Southern Co. (SO) - 5.2%

3. Dominion Energy Inc./VA (D) - 5%

4. PPL Corp. (PPL) - 5.9%

5. OGE Energy Corp. (OGE) - 4.1%

6. Brookfield Renewable Partners LP (BEP) - 6.4%

7. SCANA Corp. (SCG) - 6.5%

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

9. Duke Energy Corp. (DUK) - 4.6%

10. Pattern Energy Grp. Inc. (PEGI) - 9.7%

11. NorthWestern Corp. (NWE) - 4.1%

12. NRG Yield Inc. (NYLD.A) - 7.1%

13. Entergy Corp. (ETR) - 4.5%

14. AES Corp./The (AES) - 4.6%

15. 8point3 Energy Partners LP (CAFD) - 9.4%

16. NRG Yield Inc. (NYLD) - 6.9%

17. FirstEnergy Corp. (FE) - 4.2%

31


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) - 13.4%

2. Energy Transfer Partners LP (ETP) - 13.8%

3. Omega Healthcare Investors Inc. (OHI) - 9.8%

4. TC PipeLines LP (TCP) - 12.2%

5. Owens & Minor Inc. (OMI) - 6.6%

6. Enterprise Product Partners LP (EPD) - 7%

7. Holly Energy Partners LP (HEP) - 9.4%

8. Welltower Inc. (WELL) - 6.3%

9. AmeriGas Partners LP (APU) - 9.5%

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

11. NuStar Energy LP (NS) - 21.6%

12. NuStar GP Holdings LLC (NSH) - 19%

13. Altria Grp. Inc. (MO) - 4.4%

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

15. Vodafone Grp. plc (VOD) - 6%

16. Enbridge Inc. (ENB) - 6.8%

17. Sunoco LP (SUN) - 12.7%

18. Royal Dutch Shell plc (RDS.A) - 5.9%

19. ONEOK Inc. (OKE) - 5.5%

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

21. BCE Inc. (BCE) - 5.4%

22. Kraft-Heinz Co./The (KHC) - 4.1%

23. Energy Transfer Equity LP (ETE) - 8.6%

24. Southern Co. (SO) - 5.2%

25. HCP Inc. (HCP) - 6.3%

26. Vector Grp. Ltd (VGR) - 7.8%

27. Royal Dutch Shell plc (RDS.B) - 5.7%

28. W.P. Carey Inc. (WPC) - 6.5%

29. Universal Corp. (UVV) - 4.4%

30. Dominion Energy Inc./VA (D) - 5%

31. AT&T Inc. (T) - 5.6%

32. R.R. Donnelley & Sons Co. (RRD) - 6.5%

33. Exxon Mobil Corp. (XOM) - 4.1%

34. Arbor Realty Trust Inc. (ABR) - 9.6%

35. Realty Income Corp. (O) - 5%

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

37. AbbVie Inc. (ABBV) - 4.1%

38. Philip Morris Intl. Inc. (PM) - 4.2%

39. Golar LNG Partners LP (GMLP) - 13.3%

40. Signet Jewelers Ltd (SIG) - 4%

41. Lexington Realty Trust (LXP) - 8.9%

42. CrossAmerica Partners LP (CAPL) - 12.2%

43. General Mills Inc. (GIS) - 4.3%

44. PPL Corp. (PPL) - 5.9%

45. GameStop Corp. (GME) - 11.4%

46. Canadian Imperial Bank of Commerce (CM) - 4.7%

47. Starwood Property Trust Inc. (STWD) - 9.1%

48. QUALCOMM Inc. (QCOM) - 4.2%

49. Magellan Midstream Partners LP (MMP) - 6.4%

50. OGE Energy Corp. (OGE) - 4.1%

51. LTC Properties Inc. (LTC) - 6%

52. Western Gas Partners LP (WES) - 8.6%

53. Brookfield Renewable Partners LP (BEP) - 6.4%

54. SCANA Corp. (SCG) - 6.5%

55. Hospitality Properties Trust (HPT) - 8.3%

56. Verizon Communications Inc. (VZ) - 4.9%

57. Tanger Factory Outlet Centers Inc. (SKT) - 6%

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

59. Kimco Realty Corp. (KIM) - 7.7%

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

61. Transmontaigne Partners LP (TLP) - 8.6%

62. EnLink Midstream Partners LP (ENLK) - 11.6%

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

64. Duke Energy Corp. (DUK) - 4.6%

65. Patterson Companies Inc. (PDCO) - 4.7%

66. Mercury General Corp. (MCY) - 5.5%

67. Sabra Health Care REIT Inc. (SBRA) - 10.1%

68. EPR Properties (EPR) - 7.8%

69. Compass Diversified Holdings LLC (CODI) - 8.8%

70. Helmerich & Payne Inc. (HP) - 4.2%

71. Spectra Energy Partners LP (SEP) - 8.7%

72. PennantPark Floating Rate Capital Ltd (PFLT) - 8.6%

73. Meredith Corp. (MDP) - 4%

74. Main Street Capital Corp. (MAIN) - 6.1%

75. National Retail Properties Inc. (NNN) - 4.8%

76. Urstadt Biddle Properties Inc. (UBA) - 5.5%

77. Macy's Inc. (M) - 5%

78. Cedar Fair LP (FUN) - 5.5%

79. L Brands Inc. (LB) - 6.3%

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

81. Andeavor Logistics LP (ANDX) - 8.9%

82. Select Income REIT (SIR) - 10.5%

83. DDR Corp. (DDR) - 10.1%

84. Iron Mountain Inc. (IRM) - 7.1%

85. Pattern Energy Grp. Inc. (PEGI) - 9.7%

86. STAG Industrial Inc. (STAG) - 5.9%

87. NorthWestern Corp. (NWE) - 4.1%

88. Occidental Petroleum Corp. (OXY) - 4.6%

89. DCP Midstream LP (DCP) - 8.9%

90. Preferred Apartment Communities Inc. (APTS) - 6.8%

91. Hercules Capital Inc. (HTGC) - 10.3%

92. Westpac Banking Corp. (WBK) - 6.5%

93. New Residential Inv. Corp. (NRZ) - 12.3%

94. Targa Resources Corp. (TRGP) - 8.3%

95. Apollo Comml. Real Estate Finance Inc. (ARI) - 10.3%

96. Las Vegas Sands Corp. (LVS) - 4.3%

97. Universal Health Realty Income Trust (UHT) - 4.4%

98. Phillips 66 Partners LP (PSXP) - 5.7%

32


99. Westlake Chemical Partners LP (WLKP) - 6.7%

100. One Liberty Properties Inc. (OLP) - 7.6%

101. TOTAL S.A. (TOT) - 5%

102. The GEO Grp. Inc. (GEO) - 9%

103. American Campus Communities Inc. (ACC) - 4.5%

104. NRG Yield Inc. (NYLD.A) - 7.1%

105. PBF Logistics LP (PBFX) - 10%

106. EnLink Midstream LLC (ENLC) - 7.2%

107. Ford Motor Co. (F) - 5.3%

108. Entergy Corp. (ETR) - 4.5%

109. Nielsen Holdings plc (NLSN) - 4.3%

110. Western Gas Equity Partners LP (WGP) - 6.7%

111. Delek Logistics Partners LP (DKL) - 10.2%

112. Kite Realty Grp. Trust (KRG) - 8.1%

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

114. AES Corp./The (AES) - 4.6%

115. VEREIT Inc. (VER) - 7.9%

116. Ares Capital Corp. (ARCC) - 9.5%

117. Macerich Co. (MAC) - 5.1%

118. HSBC Holdings plc (HSBC) - 5.4%

119. Chesapeake Lodging Trust (CHSP) - 5.6%

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

121. Life Storage Inc. (LSI) - 4.7%

122. Urstadt Biddle Properties Inc. (UBP) - 5.7%

123. AmTrust Financial Srvcs. Inc. (AFSI) - 5.5%

124. Seagate Technology plc (STX) - 4.3%

125. Brixmor Property Grp. Inc. (BRX) - 7.2%

126. CorEnergy Infra. Trust Inc. (CORR) - 8%

127. Höegh LNG Partners LP (HMLP) - 10.4%

128. Icahn Enterprises LP (IEP) - 11.6%

129. National CineMedia Inc. (NCMI) - 12.9%

130. Hannon Armstrong Sust. Infra. Capital Inc. (HASI) - 6.9%

131. BP plc (BP) - 5.9%

132. Tallgrass Energy Partners LP (TEP) - 10.1%

133. Medical Properties Trust Inc. (MPW) - 7.8%

134. Banco Latinoamericano de Comercio (BLX) - 5.4%

135. SunCoke Energy Partners LP (SXCP) - 13.3%

136. 8point3 Energy Partners LP (CAFD) - 9.4%

137. Brookfield Property Partners LP (BPY) - 6.6%

138. Gladstone Inv. Corp. (GAIN) - 7.6%

139. GGP Inc. (GGP) - 4.3%

140. Westwood Holdings Grp. Inc. (WHG) - 4.8%

141. BGC Partners Inc. (BGCP) - 5.4%

142. Sprague Resources LP (SRLP) - 10.6%

143. Ryman Hospitality Properties Inc. (RHP) - 4.4%

144. Summit Midstream Partners LP (SMLP) - 16.6%

145. Gladstone Comml. Corp. (GOOD) - 8.6%

146. Chatham Lodging Trust (CLDT) - 6.8%

147. Armada Hoffler Properties Inc. (AHH) - 5.8%

148. MPLX LP (MPLX) - 7.4%

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

150. Spirit Realty Capital Inc. (SRC) - 9%

151. USD Partners LP (USDP) - 13.3%

152. KNOT Offshore Partners LP (KNOP) - 10.4%

153. RLJ Lodging Trust (RLJ) - 6.5%

154. USA Compression Partners LP (USAC) - 12.6%

155. GasLog Partners LP (GLOP) - 8.7%

156. Government Properties Income Trust (GOV) - 13.2%

157. NRG Yield Inc. (NYLD) - 6.9%

158. Pennsylvania Real Estate Inv. Trust (PEI) - 8.5%

159. Community Healthcare Trust Inc. (CHCT) - 6.2%

160. Waddell & Reed Financial Inc. (WDR) - 4.9%

161. SemGroup Corp. (SEMG) - 8.6%

162. Enviva Partners LP (EVA) - 8.6%

163. Green Plains Partners LP (GPP) - 10.6%

164. Ciner Resources LP (CINR) - 8.3%

165. Pebblebrook Hotel Trust (PEB) - 4.5%

166. Hersha Hospitality Trust (HT) - 6.1%

167. Granite Real Estate Inv. Trust (GRP.U) - 5.3%

168. Bowl America Inc. (BWL.A) - 4.6%

169. New Media Inv. Grp. Inc. (NEWM) - 8.5%

170. Brandywine Realty Trust (BDN) - 4.6%

171. Cato Corp./The (CATO) - 8.3%

172. Vermilion Energy Inc. (VET) - 6.3%

173. Redwood Trust Inc. (RWT) - 7.2%

174. City Office REIT Inc. (CIO) - 7.9%

175. Ashford Hospitality Trust Inc. (AHT) - 7.2%

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

177. InfraREIT Inc. (HIFR) - 5%

178. MGM Growth Properties LLC (MGP) - 6.5%

179. Enable Midstream Partners LP (ENBL) - 9.3%

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

181. Global Net Lease Inc. (GNL) - 12.1%

182. Goldman Sachs BDC Inc. (GSBD) - 9.5%

183. Xenia Hotels & Resorts Inc. (XHR) - 5.4%

184. Apple Hospitality REIT Inc. (APLE) - 6.8%

185. Northstar Realty Europe Corp. (NRE) - 4.6%

186. Independence Realty Trust Inc. (IRT) - 7.8%

187. Dynagas LNG Partners LP (DLNG) - 15.9%

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

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

190. LaSalle Hotel Properties (LHO) - 6.1%

191. Cheniere Energy Partners LP (CQP) - 6.9%

192. New Senior Inv. Grp. Inc. (SNR) - 12.7%

193. FirstEnergy Corp. (FE) - 4.2%

194. FS Inv. Corp. (FSIC) - 10.1%

195. Black Stone Minerals LP (BSM) - 7.5%

196. Uniti Grp. Inc. (UNIT) - 14.9%

197. Barnes & Noble Inc. (BKS) - 11.3%

198. Consolidated Communications Hldgs. Inc. (CNSL) - 13.8%

199. CenturyLink Inc. (CTL) - 12.6%

200. New York Community Bancorp Inc. (NYCB) - 5.3%

201. Outfront Media Inc. (OUT) - 7.7%

202. Williams Companies Inc./The (WMB) - 5.6%

203. National Research Corp. (NRCIB) - 4.9%

204. Navient Corp. (NAVI) - 5%

205. Franklin Street Properties Corp. (FSP) - 9%

206. Costamare Inc. (CMRE) - 6.2%

207. Gannett Co. Inc. (GCI) - 6.9%

208. IDT Corp. (IDT) - 6.2%

209. Buckle Inc./The (BKE) - 4.4

33


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 Return2

Buckeye Partners LP (BPL) November 2016 Hold -34.0%

Enterprise Products Part. (EPD) November 2016 Hold 5.8%

Omega Healthcare Inv. (OHI) November 2016 Hold -3.3%

Holly Energy Partners (HEP) December 2016 Hold -6.1%

TC PipeLines LP (TCP) December 2016 Hold -34.6%

Energy Transfer Partners (ETP)3 January 2017 Hold -20.9%

AmeriGas Partners LP (APU) January 2017 Hold -7.9%

Owens & Minor Inc. (OMI) November 2017 Hold -15.4%

Welltower Inc. (WELL) January 2018 Hold -10.7%

Senior Housing Prop. (SNH) February 2018 Hold -1.9%

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

10, as well as sells and pending sells.

2 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. 3 Recommended as SXL which changed its ticker to ETP.

34


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

Name & Ticker Recommend Date Total Return4 Current Yield Sell Yield

AT&T Inc. (T) November 2016 3.6% 5.5% 3.6%

Urstadt Biddle Prop. (UBA) November 2016 0.4% 5.4% 3.6%

Magellan Midstream (MMP) November 2016 -2.5% 6.1% 3.4%

Spectra Energy Part. (SEP) November 2016 -12.5% 8.6% 3.7%

Energy Transfer Eq. (ETE) November 2016 9.4% 8.5% 3.9%

Gladstone Inv. Corp. (GAIN) February 2017 26.8% 7.5% 6.7%

W.P. Carey Inc. (WPC) February 2017 6.2% 6.5% 4.0%

Sunoco LP (SUN) May 2017 -4.9% 12.4% 5.3%

Kohl’s Corp. (KSS) May 2017 71.0% 3.7% 2.2%

Macy’s Inc. (M) May 2017 10.5% 4.9% 1.7%

Occidental Petroleum (OXY) June 2017 18.0% 4.5% 1.9%

Royal Dutch Shell (RDS.B) July 2017 27.9% 5.6% 3.8%

Vector Group Ltd (VGR) August 2017 7.8% 7.8% 5.1%

Target Corp. (TGT) November 2017 24.3% 3.4% 1.5%

ONEOK Inc. (OKE) January 2018 8.5% 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 notes5 -32.3%

Suburban Propane Part. LP (SPH) July 2017 See notes 6 -3.3%

4 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. 5 Sell at historical average yield of 6.5%, currently at 10.1% 6 Sell at historical average yield of 8.7%, currently at 10.8%

35


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

TCP TC PipeLines $ - TCP TC PipeLines $ 4,353

OMI Owens & Minor $ - OMI Owens & Minor $ 7,312

EPD Enterprise Products $ - EPD Enterprise Products $ 2,799

HEP Holly Energy Partners $ - HEP Holly Energy Partners $ 2,952

WELL Welltower $ - WELL Welltower $ 6,660

APU AmeriGas Partners $ - APU AmeriGas Partners $ 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 APU, 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, The Sure Dividend, and The

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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36


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:

37


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

38


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.

39


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 rates.

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 such as an IRA or 401k.

40


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 rate.

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.

41


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 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 expenses.

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.

Distribution yield is used for them instead of dividend yield, though some companies

(notably REITs) call it a dividend for ease of understanding by the public.

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.

Documents

April 2018 Edition · Buckeye Partners LP ... (SNH) REIT $16 0.56 9.9% 99% 2.0% 0.19 Notes: The ‘Score’ column shows how close the composite rankings are between the top 10