“Midstream Profit Partnerships — Supercharged Cash Payouts” from the Motley Fool

By Travis Johnson, Stock Gumshoe, April 15, 2009

“Why gamble on long shots when you can secure steady 9%, 10%, and 18% payouts?

“Thanks to an obscure 1987 tax reform, the 3 energy companies you’ll read about below are legally required to hand you supercharged cash payouts on a regular basis — no matter what happens to the price of oil and gas.

“Today’s top insiders and in-the-know investors are using them to boost their income… rescue their retirements… and grow rich — in spite of the economy. If you’ve got 20 minutes and a brokerage account, you can join them today…”

This “could it really be so easy” ad rolls in from James Early at the Motley Fool’s Income Investor newsletter, a letter that had a change of leadership a couple years ago — right around the time that the Stock Gumshoe started tracking their teaser picks.

It’s been a tough year for many of the picks touted by Income Investor in the recent past, particularly for the very heavily touted CapitalSource that they pounded the table about a year or so ago as the best pick for your IRA, but also for Veolia Environnement and several energy stocks that they’ve teased us with in recent years, including Petrobras, Statoil (now StatoilHydro) and Sasol … but many folks believe that this is a good environment for picking up solid dividend-paying companies, so let’s have a look.

Income Investor has been the second-best Fool newsletter over the past three years, according to Hulbert — second only to the flagship Stock Advisor. Of course, all of them have lost a lot of money on average, but haven’t we all? Coincidentally, Income Investor is also the second-ranked Motley Fool newsletter according to Stock Gumshoe Reviewers — though in this case it’s second to Motley Fool Pro, a much newer service, and that’s based on just one review.

But really, we’re here to find some high-income stocks — and Early claims to have a few doozies.

The spiel is a good long one, as with most Motley Fool ads — not quite Tolstoyish like some others we’ve reviewed, but certainly enough to give your friendly neighborhood Gumshoe a bit of a headache.

And, as seems to be the style these days, they throw out the actual name and ticker for one stock idea and talk about it, and then claim to have two more just like it — or even better — that are yours for the low low price of a subscription to their service. If that’s an attempt to throw the Gumshoe off the scent, varlets, then stand back … I know a tease when I see one.

The ad first teases that the way to rebuild your portfolio is by investing in “midstream profit partnerships” …

“… buried deep in all that bureaucratic doublespeak [the tax code] is a crucial provision that grants special tax exemptions to companies where at least 90% of earnings come from “qualified income,” which is defined as…

“The processing, refining, transportation (including pipelines transporting gas, oil, and similar products), or marketing of any mineral or natural resource.”

“This tax break was originally designed to spur the development of America’s energy and natural resource infrastructure — which it did. But the unexpected benefit was that it created a virtually unstoppable profit engine for in-the-know investors.”

So those who are familiar with income investing probably recognize immediately that these “midstream profit partnerships” are more commonly referred to as Master Limited Partnerships (MLPs) … and hearing them referred to with an invented name is no big surprise, I’ve written about these being teased before as