Billionaire Bill Gross' Enthusiasm for These Ultra-High-Yield Dividend Stocks Is Cooling Off

Bill Gross, the legendary bond investor and co-founder of PIMCO, has been a long-time advocate of Master Limited Partnerships (MLPs) for their high tax-advantaged yields and attractive valuations. However, in a recent post on X (formerly Twitter), Gross indicated that his enthusiasm for MLPs has started to cool. He believes that the rally in pipeline stocks has run its course and that investors should consider selling if they own too much. Gross still favors MLPs for their relatively more attractive income streams, especially given their tax advantages, but he acknowledges that their share prices could take a hit in the near term due to tax loss harvesting.



The recent rally in pipeline stocks has been fueled by the expected resurgence in natural gas demand in the coming years, driven by factors such as artificial intelligence (AI) data centers, the onshoring of manufacturing, and the electrification of everything. This surge in demand should drive meaningful additional demand for natural gas, and pipeline companies are already starting to capitalize on this trend. However, the rally in pipeline stocks has led to higher valuations and lower dividend yields, which may indicate that the rally has reached its peak.

Despite his reduced enthusiasm for MLPs, Gross still believes that they offer compelling investment opportunities for income-focused investors. He highlights several MLPs with strong financial profiles and attractive yields, such as Energy Transfer (ET), Western Midstream Partners (WES), and MPLX. These MLPs have growth projects lined up that could fuel their high-yielding distributions for years to come, and they offer tax-advantaged income streams that are attractive to investors seeking passive income.

While the current yields of these MLPs are attractive compared to the S&P 500's yield of 1.2% and pipeline corporations like Kinder Morgan, it is essential to consider their historical averages and industry peers. The historical average yields and industry peer comparisons are not explicitly stated in the provided information, but it is mentioned that these MLPs have been increasing their distributions and have strong financial profiles. This suggests that their current yields may be higher than their historical averages and competitive with other MLPs in the industry.

Investing in MLPs at their current valuations presents both potential risks and rewards. The potential rewards include attractive yields, growth potential, tax advantages, and strong financial profiles. However, the potential risks include valuation concerns, volatility, commodity price exposure, interest rate risk, and tax complexities. Investors should be cautious and consider selling if they own too much, as the rally in pipeline stocks may have reached its peak. However, MLPs still offer attractive income streams and growth prospects, making them compelling investment opportunities for income-focused investors.

In conclusion, Bill Gross' enthusiasm for ultra-high-yield dividend stocks, specifically MLPs, has cooled off due to the rally in pipeline stocks reaching its peak. However, he still favors MLPs for their relatively more attractive income streams and growth prospects. Investors should consider the potential risks and rewards of investing in MLPs at their current valuations and make informed decisions based on their individual risk tolerance and investment goals.