Few would argue that it usually takes money to make money. Nonetheless, few events in the world of master limited partnerships (MLP) seem to shake investors like secondary offerings of common units.

Management may have a spotless track record for investing funds in cash-generating assets. And it may state unequivocally that the raised money will be spent only on the most proven of projects or that most conservative of purposes, debt reduction. But investors have shown time and again they’ll sell first and ask questions later, often sending prices sharply lower.

In short, there seems to be a presumption of failure for all MLP equity offerings great and small. That is, investors see only dilution from having additional units outstanding–and rarely, if ever, that the invested funds will be accretive, i.e. produce a return on capital that will boost cash flow and eventually distributions and unit prices.

Having a “show me” attitude when it comes to Corporate America is certainly understandable in the current environment. In fact, with the great blowdown of 2008-09 so fresh in the memory, it’s even commendable.

Applying that same degree of skepticism to well-run MLPs, however, is basically neurotic. Of our Conservative Holdings, for example, Enterprise Products Partners LP (NYSE: EPD) has now raised its distribution 24 consecutive quarters, or every quarter for six years. For Genesis Energy LP (NYSE: GEL) the string is 20 and counting. For Sunoco Logistics LP (NYSE: SXL) it’s 21.

Kinder Morgan Energy Partners LP (NYSE: KMP) has hiked its payout at least once every year–twice already in 2010–since its inception in 1992. Magellan Midstream Partners LP (NYSE: MMP) has also boosted its distribution twice this year. That restores a pattern of quarterly boosts dating from its early 2001 spinoff from Williams Companies (NYSE: WMB) that was interrupted last year in the wake of the recession and its internal restructuring. And Spectra Energy Partners LP (NYSE: SEP), which has returned 59.8 percent since its most recent public offering of equity in May 2009, has increased in all 12 quarters of its existence.

Past is not always prologue. But these consistent distribution increases were sustained during one of the most difficult periods ever for Corporate America, as well as for the energy business. That’s proof positive of an ultra-reliable business model–and that management can put money to work to build more revenue even under very tough conditions.

Proven Model

One reason for these MLPs’ success is simply the wealth of opportunity in shale oil and gas reserves. Like Canada’s oil sands, US shale reserves have been well known for decades but deemed by producers to be uneconomic. The chief reason: a very high cost of development due to technical concerns.

However, as my co-editor Elliott Gue has written, US industry has now largely “cracked the code” for developing shale gas and oil. Now armed with a range of “directional” drilling procedures and technology, drillers can get at reserves long buried under rock as easily as they can conventional oil and gas and often more cheaply.

The result is a continuing explosion in shale development, which has created a corresponding demand for new infrastructure to get the oil and gas to market. These include new mega-interstate pipeline and storage systems, such as Energy Transfer Partners LP’s (NYSE: ETP) Tiger Pipeline, which is anticipated to come on line during the first quarter of 2011. They also include gathering systems, which bring gas from fields to processing facilities, and the processing facilities themselves.

We’re also seeing a bit of a boom in natural gas liquids (NGL) development in the US. NGLs–which occur naturally along with natural gas reserves–can be substituted for petroleum-based liquids in a wide range of products and processes. And with oil prices driven by surging global demand particularly in Asia, NGLs are cheaper as well.

The US energy industry’s ability to refine NGLs is unmatched anywhere in the world, and exports are surging. As a result, the NGL boom is driving demand for new infrastructure, and another major opportunity for MLPs to expand their bases of cash-generating assets.

Our most direct play is Targa Resources Partners LP (NYSE: NGLS), which has completed three successful equity offerings in 2010 already. Last week management completed another major acquisition, a $247 million “drop-down” of parent Targa Resources’ 63 percent interest in a natural gas gathering and processing system located in southeast New Mexico and West Texas. Enterprise Products is also a major player in NGLs.

In the long run, the greatest danger to the energy infrastructure industry will be when companies start engaging in what I call speculative development. That is, management launches projects on the supposition that demand will appear when they are complete, rather than ensuring the business is there before beginning construction.

For the past several years, the business of forecasting natural gas prices has been not quite jokingly referred to as the “widow maker” among traders for good reason. Over the past five years, we’ve seen prices measured per million British thermal units (MMBtu) rocket to the high teens, crash back under $5, soar again to the low teens and over the past couple years sink back to recent lows of less than $4 per MMBtu.

Looking ahead, forecasting gas prices isn’t likely to get much easier. Shale gas development continues and the ability to export it remains limited by a lack of LNG compression facilities. Rather, the LNG capacity is still oriented toward imports, reflecting the popular perception of just a few years ago that US production would continue to fall.

Meanwhile, demand in the US for gas remains constrained by still-high levels of idled industrial capacity, the hangover of the sharpest economic downturn in 80 years. Industrial demand has shown signs of life in recent months. And US electric utilities across the country reported a sharp uptick in second-quarter power sales to industrial users, even as companies increasingly turn to clean-burning and currently cheap gas over coal.

Our view is that sooner or later, these forces will lift natural gas prices again. That’s a major reason we expect a lot more upside in our energy producer MLPs going forward, particularly direct plays EV Energy Partners LP (NSDQ: EVEP), Legacy Reserves LP (NSDQ: LGCY) and Linn Energy LLC (NSDQ: LINE). All three are also heavily hedged in the near term, limiting financial and dividend risk to today’s sliding prices.

In the meantime, however, the volatile pricing environment–coupled with memories of 2008–is enforcing an environment of strict conservatism. That is, MLPs aren’t turning even the first spade full of earth on new projects until they’re either fully contracted or near so. All companies have to do is effectively manage costs during development and they’re guaranteed a generous rate of return. And despite the steady flow of projects to our picks and other strong MLPs, that trend shows no sign of abating.

Cheap Money

The other major reason why MLPs’ growth is in such a sweet spot is their currently historically low cost of capital. In early 2009, Enterprise Products Partners’ five-year debt had a yield-to-maturity (YTM) of nearly double digits. Today, its bonds maturing in June of 2015 have a YTM–which takes into account bonds’ maturity at par value ($1,000)–of just 3.03 percent. In fact, the MLP has been able to issue four series of bonds maturing in 2060 or later. A Jan. 15, 2068, issue pays a YTM of barely 7 percent, and that’s despite a sub-investment grade, or junk, rating of BB from S&P and Fitch and a Ba1 rating from Moody’s.

Certainly there are limits to how much debt any company can issue and maintain its financial strength, be it an MLP or a corporation. But by locking in money at these low rates for such long periods, Enterprise and others have been able to make low-risk projects extremely profitable, when they would have been only marginal a few years ago.

To be sure, these dream-like credit conditions can’t be expected to last forever. Should the economy slip back into recession, for example, required returns for MLP bonds–including those issued by icons like Enterprise–are certain to move back to norms. Ditto when inflation again raises its ugly head, though that appears some time off given global deflation pressures.

In the meantime, however, Enterprise and others are taking advantage to lock in robust growth for years to come. And despite robust capital spending, they’ve also systematically reduced near-term refinancing risk to the point where even an extremely unlikely reprise of late 2008 would have little or no impact.

Enterprise’s debt maturities through 2011, for example, are only 3 percent of its market capitalization. Genesis Energy’s are 6.5 percent of market cap, while Kinder Morgan’s are 4.6 percent and Sunoco Logistics’ are just 2.6 percent. These are minimal refinancing needs at most that, in a worst-case, can be handled by balance sheet cash or operating cash flow.

Meanwhile, DCP Midstream Partners LP (NYSE: DPM), Encore Energy Partners LP (NSYE: ENP), EV Energy Partners, Inergy LP (NSDQ: NRGY), Legacy Reserves, Linn Energy, Magellan Midstream, Navios Maritime Partners LP (NYSE: NMM), Regency Energy Partners LP (NSDQ: RGNC), Spectra Energy Partners, Targa Resources and Teekay LNG Partners LP (NYSE: TGP) have no debt maturities before 2011. Neither do Aggressive Holding Penn Virginia GP Holdings LP (NYSE: PVG) and its Penn Virginia Resources LP (NYSE: PVR) unit.

That’s pretty bullet proof, and stands in marked contrast to what seems to be a popular perception that MLP balance sheets are somehow weak. But the cheapest capital source for MLPs is rapidly becoming equity offerings.

Again, our view is in stark contrast to the apparent belief on Wall Street that all equity offerings are bad. Street pessimism is demonstrated by the sharp selloffs that continue to greet literally every MLP’s attempt to bring new units to market.

As legendary economist John Maynard Keynes was famously quoted, “We’re all dead in the long run.” And as esteemed trader Jesse Livermore once said, “The market can be wrong a lot longer than (we) can be solvent.” In the case of MLP equity issues, however, investors who’ve bet against the Street this year haven’t had to wait long to be proven right–and to reap the reward of generous returns and dividend increases.

Check out the table below showing equity issues by MLPP Portfolio recommendations in 2010. Every one of these issues triggered an initial selloff after they were announced–some quite sharp if the market was particularly pessimistic. Within a month, however, issuers in more than half of these deals were already in the black. After six months, all issuers were on higher ground. And most have increased their distributions at least once as well, as the money raised and invested boosted cash flow per share.

MLP equity issues are dangerous for one group of investors: those who use stop-losses, particularly of the “trailing” variety. These essentially create a large pool of sell orders at particular price points that can take down MLPs in a hurry on a bad day. Sellers aren’t guaranteed to get out at the stop-loss price point. Rather, they’re cashed out at whatever price generates sufficient buy orders, which is often well below that level.

The quizzical upshot: Equity issues are bullish events that boost cash flow and distribution growth in both the short and long run, as a very low cost of capital enables MLPs to lock in generous returns on the lowest risk of investments. And the selloffs they create enable investors to lock in positions in the MLPs that benefit at rock-bottom prices.

That adds up to major buying opportunities for investors who keep their heads when others are losing theirs. And it’s yet another warning sign against trying to play too much defense in a market where expectations are extremely low and propensity for panic is almost unprecedented.

Lucky Linn

Note that Linn Energy hosted a presentation to analysts and the EnerCom Oil and Gas conference, held Aug. 26. Highlights included reiteration of the company’s guidance for 2010 production growth to 24 percent. That’s in large part due to its push into the Permian Basin, where it acquired assets with a 22-year reserve life and a 50-50 proved developed reserve mix between oil and gas.

At the recent San Francisco MoneyShow, Elliott and I encountered questions from some about Linn’s ability to maintain its distribution over the long haul. At least some of these queries were no doubt triggered by the series of recent articles from a well-distributed Internet publisher targeted to get eyeballs by questioning the safety of some well-known investments like MLPs.

In Linn’s case, these facts should go a long way to quelling such fears. So should the fact that the company in CFO Kolja Rockov’s words, has “about 5,000 drilling locations” while it drills “depending on the year, right around 100 wells.” Put another way, that’s a current inventory of 50 years of wells from which to sustain and/or expand output when conditions permit. And management is constantly extending that with acquisitions, doing some $1 billion of deals this year.

There is some question about the company’s heavy hedge position, particularly in natural gas, where locked-in prices are in some cases nearly three times current spot prices. Should gas prices remain where they are now when these hedges come off, it would have some impact on Linn’s cash flow.

Even here, however, fears are overblown to the point of neuroses. For one thing, more than 90 percent of production is hedged for the next four years. As we’ve seen over the past five years, that’s in fact several lifetimes in the natural gas market. And every time gas prices spike, it’s another opportunity for Linn to lock in future prices. For another, Linn is hardly all gas, with half of its reserves liquids and growing. That’s a major change from a few years ago, when the company as 100 percent gas and it demonstrates management’s flexibility and ability to move with market conditions.

Linn is a member of the Aggressive Portfolio precisely because of its commodity price exposure. And no one should buy in unless they want to bet on energy. But neither is the distribution at any kind of near-term risk. In fact, Mr. Rockov stated at the presentation that “the rate of return these wells are generation give us the ability to grow distributions in the very near future.”

This potential for payout growth is no doubt reflected already in Linn’s unit price, which is more than double its May Flash Crash low of just $12.60. But with a rising production profile that’s only starting to kick in, a still high yield of nearly 9 percent and 1.21-to-1 distributable cash flow coverage that’s set to grow going forward and ability to benefit from both higher oil and gas prices Linn is on solid footing. Linn Energy LLC remains a strong buy up to 30.