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April 29, 2011

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8 Decade Secular Trend

I’m trying to figure out if there are any conclusions to be drawn from the U.S. Census data for 2010, see if I can get my tax money’s worth out of it….  Massachusetts grew in population by 3.1% from 2000 to 2010, and the New England region as a whole grew in population by 3.2%.  By comparison, Texas grew its population by 20.5% in the last ten years, and its region (the South) grew more than any other region in the US, by 14.3%.

Source: U.S. Census Bureau
West Includes: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY.
South Includes: AR, AL, DE, TX, GA, FL, KY, LA, MD, MS, NC, OK, SC, TN, VA, WV.
Northeast Includes: CT, MA, ME, NH, NJ, NY, PA, RI, VT.
Midwest Includes: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI.

This pattern is not new.  In fact, the last time that either the Midwest or Northeast had growth higher than the South or West in a decade was the 1920s, when the Northeast grew 14.7%.  Population growth in general is positive for companies that build energy infrastructure as consumption (and hence pipeline utilization and throughput) rises with more people. Population growth towards an area of the country where fewer assets have been developed over the years creates continual expansion opportunities for MLPs.  The pipeline systems that service me in Massachusetts were built in the 1940s, as shown here, so while there are acquisition and rollup strategies that work in the northeast, there are not many pipeline new build projects happening there.
Another more recent trend (only a few decades in the making) is the growth of the older population in the U.S.   In the next 4 years, the over 65 population in the U.S. is expected to grow 40% to 54.8 million, to represent 16% of the population, far and away more than ever in both total and percentage.  These older people will need income, and the social security program is not the answer.  If interest rates stay low and inflation trends stay high, they will need something more than CDs and U.S. treasuries to pay their bills, particularly their home heating and electricity bills.

Many in the MLP industry have pointed to this trend in the past and theorized that it would be the catalyst to drive MLPs up and narrow the yield gap between MLPs and REITs.  I’m not sure, but it should provide a long-term tailwind for the industry.  But shouldn’t the income and growth characteristics of MLPs be growth catalysts themselves.  In other words, who says you have to be older than 65 to like income wth growth that keeps up with inflation?

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