There is no crying in MLP CEFs
KMF trades at a deep discount to net asset value.
Every year we are asked to share our Top Income Stock Pick by the kind folks that publish Wall Street’s Best Investments. Our Top Pick last year (for 2019) was DoubleLine Income Solutions Fund (Symbol: DSL), which did much better than we expected with a calendar year 2019 total return of 25.2%. Pretty pretty good!
This year (2020), our Top Pick is the Kayne Anderson Midstream Energy Fund (Symbol: KMF). Here is what we wrote in our recommendation last month:
The Kayne Anderson Midstream Energy Fund (Symbol: KMF) closed-end fund is our 2020 Top Pick for investors. At the recent price of $10.42, the closed-end fund trades at a -13.0% discount to the net asset value of $11.98. This discount to net asset value provides investors some margin of safety against ongoing weakness in energy companies. The closed-end fund pays a monthly distribution of $0.075, or $0.90 per year. This represents a distribution yield of 8.6% at the current share price. The fund seeks to provide a high level of total return with an emphasis on quarterly cash distributions.
At today’s close on January 9th, KMF trades at $10.71 per share. That is a -13.9% discount to the net asset value (NAV) of $12.43. The discount to net asset value provides investors with some protection against further weakness in the energy/MLP sector. KMF offers an 8.41% distribution rate at today’s price. It pays a monthly distribution of $0.075 per share, or $0.90 per share annually. These are taxable distributions, so this income generating security is best held in a tax-advantaged investment account. We expect both the MLP sector and this fund to enjoy a recovery in 2020.
Here is the fund’s objective per their website:
KMF is a non-diversified, closed-end fund whose investment objective is to provide a high level of total return with an emphasis on making cash distributions to our stockholders. We seek to achieve that investment objective by investing at least 80% of our total assets in the securities of companies in the Midstream/Energy Sector, consisting of (a) Midstream MLPs, (b) Midstream Companies, (c) Other MLPs and (d) Other Energy Companies. We anticipate that the majority of our investments will consist of investments in Midstream MLPs and Midstream Companies.
Fair Warning: This fund is very volatile. The MLP sector is also very volatile. If price volatility bothers you, you will not enjoy owning this security. It is for investors seeking a high payout distribution in a beaten down, oversold sector willing to accept volatile prices.