Instead of recapitulating what has now become a belabored list of market grievances, I have some information that might be of use primarily to income-oriented folks.

I want to point out one of the anomalies in the market today: Yields on certain high–quality income investments have remained quite generous, even with the Fed cutting interest rates.

This is particularly true for the tax-sheltered Master Limited Partnerships (MLP), which in some cases are paying well over 7%.

But before I get into three masters of the income universe, I want to clear up some of the misconceptions that lead investors to shy away from MLPs, and to reiterate why we here at Profitable Investing have such a soft spot in our portfolios for them.

Misunderstanding Cleared Up

In a previous issue of Profitable Investing, I did my best to lay two of the most common concerns about MLPs to rest:

1. MLPs bear little or no resemblance to the shady real estate or oil drilling limited partnerships that blew up in people's faces during the 1980s.

The "master" in the name means that these partnerships are publicly traded, most often on the New York Stock Exchange. A public listing, in turn, puts management's abilities and strategies under the microscope of the market every business day. If an MLP hopes to raise fresh capital (and most do, from time to time), management must produce results. The 1980s deals, by contrast, weren't publicly traded, so there was no market accountability. They took your money once – and you were lucky if you ever saw it again.

2. MLPs can easily pay cash distributions in excess of their reported earnings.

Conscientious readers who like to double-check my research (something I welcome) often write me in this vein: "XYZ partnership is paying out $2 per share, but Barron's says XYZ will only earn $1.50 this year. How can they sustain the distribution?"

Simple. Most MLPs (especially those that operate pipelines or other "heavy metal" businesses) generate cash flow well above their reported earnings.

Reason: Depreciation – which is deducted in computing an MLP's earnings – is a bookkeeping entry that doesn't actually consumer cash. As a result, the part of your quarterly distributions that exceeds reported earnings escapes current taxes. Eventually, when you sell your MLP units, the government will tax those deferred amounts as ordinary income. Also, if you hold your units long enough for the cumulative deferrals to equal the units' original cost (maybe 10–13 years), you can't defer tax on any subsequent distributions. Until either of those events occurs, though, you've got a wonderful source of tax-sheltered income.