The Pipeline Cyberattack, Our (Former) Top Cybersecurity Pick, And Yield Hunting (With MLPs)…
Around this time last year, I found myself scrambling. While everyone was looking for toilet paper, I found myself looking for iron.
To be more specific, I was looking for a barbell, Olympic plates, dumbbells, you name it… My local gym had closed due to local shutdown orders, and it was gracious enough to loan out equipment to members. But it wasn’t enough, and I decided it was high time I build out a garage gym.
As it turns out, every other meathead in America had the same idea.
Fast-forward to today, and we’re still facing potential shortages. This week, thanks to a cyberattack on the Colonial pipeline, it’s gas on the eastern seaboard. (And according to headlines, chicken could be next…)
Whatever the item and whatever the cause, you can bet that bottlenecked supply chains don’t make it any easier.
Cyberattack Causes Gas Shortage In Eastern U.S.
My father recently retired from a career in data software. Without getting into too much detail, his company dealt with data processing for credit card companies and major retailers.
A while back, he told me that one of the higher-ups at his company once said that the one thing that kept him up at night was the threat of a potential major cyber-attack. Due to the nature of the business, the company’s systems were constantly being “probed” – which is why every morning, when this guy woke up, the first thing he would do is check for the morning threat report email.
It’s the kind of thing that happens way more often than you think – and the kind of thing most of us are probably better off not knowing about.
Yet we’re constantly reminded. Over the weekend, a group of hackers took down the systems for the Colonial pipeline, which supplies about 45% of the gas for the East Coast. The attack is what is known as a “ransomware” attack – which is basically what it sounds (“We took down your system – pay up if you want it back online”).
Officials have been able to restore partial operations, but it could take a while before normal operations resume. In the meantime, reports of gasoline shortages began to crop up all over the Southeast. And the Department of Transportation has declared a state of emergency in 17 states (and Washington D.C.).
As the situation unfolds, it serves as a good reminder for something we’ve been pounding the table on for the last few years. As technology progresses, so will the threat of cybercrime. And that means cybersecurity will be a huge investable theme for many years that will likely be good to investors no matter what happens in the long run.
As my colleague Jimmy Butts pointed out in this piece last year, A report by Cybersecurity Ventures states that global cybercrime costs could hit $6 trillion annually by 2021, up from $3 trillion in 2015.
His “top pick” in that piece, CrowdStrike (Nasdaq: CRWD) – is up by about 68% since then. But Jimmy and his subscribers have since moved on. To see what they’re up to now, you can go here.
There’s Still Time To Go Yield Hunting With MLPs
Speaking of pipelines, this is a good time to sing the praises of Master Limited Partnerships (or MLPs).
Our research team, along with my colleagues Jimmy Butts and Nathan Slaughter, all agreed that MLPs were a screaming opportunity last year. And they still look good today. Here’s why…
You see, MLPs took a nosedive as the economy tanked (along with energy prices) during the Covid outbreak last spring. But as savvy income investors know, that presented a once-in-a-generation opportunity to snap up these securities for cheap.
Yet even after an impressive rebound, you can see from this chart of the Alerian MLP Index that there’s still plenty of ground to make up…
Looking back, it’s obvious that MLPs weren’t going anywhere. Yes, the prospect of a dividend cut (at the time) was very real. But these midstream operators are critical to the nation’s energy infrastructure – responsible for the pipelines, storage tanks, terminals, and transmission assets that move oil and gas all over the country. In return, most of their revenue is fee-based, which serves to insulate them from volatile energy prices.
That’s in theory, of course. Because every once in a while, investors in MLPs tend to panic and sell – and they understandably panicked during Covid.
And here’s the kicker… thanks to their unique corporate structure, they are exempt from paying taxes at the corporate level as long as they pass 90% of income to shareholders.
That makes MLPs one of the best income investments nobody talks about – and they pay some of the highest yields on the market.
Back at the beginning of the year, we said we thought MLPs were like a coiled spring ready to pop as soon as the economy shows signs of getting back to normal. Back then, it was not uncommon to find a quality MLP with a yield of 10% or even 12%. And while they’ve already rebounded somewhat, you’ll still find many MLPs paying 7%, for example.
We think there’s still time to get in on this… The business picture has solidified for many of these operators, which should give less risk-tolerant investors more confidence in their ability to maintain dividend payments.
The last time we saw the MLPs sell off en masse was in 2008 – during the throes of the financial crisis. Once things got back to normal and the economy rebounded, many of these securities quadrupled in just a few years.
I’ll hold off on discussing the names of some of our favorites until a later time. For now, my recommendation would be to check out Nathan’s High-Yield Investing service for the names and tickers of a few key players.