“America’s Oil Pension: Government A.O.P. Retirement Plan”

This piece deciphered the original “A.O.P.” teaser form 2007, the ad was revised and is now running again in 2012, we looked at the new version here.

This one on the so-called American Oil Pension (A.O.P) has been making the rounds quite a bit lately, with lots of different variations over the past couple weeks — it’s from Stansberry & Associates and advertises their “Oil Report,” which is yet another subscription newsletter.

It also gave me a headache for a while, but that’s neither here nor there.

Quite a bit of space in the ad is committed to extolling the virtue of the A.O.P., and explaining how many people got terribly wealthy from this investment, with hundreds of thousands of dollars in annual payouts to some lucky investors.

And the big tease is that on May 15, the biggest payout from the AOP’s yet will make everybody rich (or everyone who subscribes, at least).

The special report you get when you subscribe is entitled: “A.O.P. Will Pay for Your Retirement – No Matter What the Price of Oil”

Their acronym, AOP, means “American Oil Pension,” and it doesn’t mean anything to those of us who don’t work for Stansberry. It’s just a made up term to make it seem more mysterious and exciting.

Lots of stuff about this makes these seem like secretive, or well-hidden companies:

Goldman Sachs, the Wall Street Journal, and MSN Money are all quoted as saying this is an undiscovered or under-appreciated investment.

And more officious sounding stuff follows, including:

“Thanks to Sections 851-855 of the U.S. Internal Revenue Code of 1986, A.O.P. businesses pay no corporate taxes on the Federal level.”

(which makes them about as unique and mysterious as Business Development Companies, Partnerships, or Real Estate Investment Trusts — woohoo!)

The other big sell for these companies is that they make money “regardless of where the market goes.” Sounds good, eh?

Well, what they’re really talking about are MLPs — Master Limited Partnerships. And they really have been around for 25+ years, without getting much attention, at least until the last three or four years. They tend to be in boring businesses that are asset-heavy and have lots of depreciation, and most of them are involved with distribution of oil, natural gas, or refined petroleum products. The most well known ones own oil and natural gas pipelines, but there are some that distribute propane, or actually do some oil exploration, etc.

And while the payouts might be a bit larger than usual these days because the price of oil is high and the infrastructure that these MLPs own is being heavily used, as far as I know there’s nothing magic about May 15 or any other artificial deadlines you’ve seen broadcast in these emails. That’s probably just the ex-dividend day for the quarterly dividend of one or several of them. Most of these MLPs have a pretty strong record of consistent increases in their payouts, of not absolutely every year than at least quite frequently.

And most of the teased companies have an average or below-average yield for this sector, along the lines of 5-6% … so if you want a several-hundred-thousand-dollar payout on May 15, you’d better be prepared to put in several million dollars first. Or start compounding your interest on a smaller investment and wait for May 15, 2070. The “huge payouts” language in the ad is a bit misleading, I think.

MLP’s in general have had 17% annualized returns over the past ten years or so … which is great, but a fair amount of that has been capital appreciation, which means in part that the yields are not nearly as high as they were when I first looked into these companies four or five years ago. Back then, I recall seeing a lot of 8-9% yields … today, it’s more like 5-6%, (this might also be a problem with my memory). This is not unlike the yield deterioration we’ve seen from most REITs.

So all the people who held these partnership shares for years are indeed now getting garbanzo payouts relative to their initial investments … you? Not so much. Wait a couple decades.

But, they did say that they had picked out the best four “AOPs” to invest in … so of the fifty or so that exist, can the Gumshoe figger out which four are Stansberry’s favorites?

Let’s see.

In the ad’s words: “What I found is that there are FOUR A.O.P. businesses that stand head and shoulders above the rest—they regularly send out the biggest paychecks… and have superior streams of revenue.”

He calls them A.O.P. companies 1-4, so here are the basics about each one, and the solution to the puzzles:

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