But this year’s biggest winner was Sunoco Logistics Partners LP (NYSE: SXL), which returned almost 50 percent in 2011–a strong performance in a somewhat dismal year for stocks. The units also returned 33 percent in 2010 and generated an almost 60 percent gain for investors in 2009.

The stock’s popularity in turbulent times is easy to understand. Sunoco Logistics Partners LP is a conservatively run MLP that operates 5,400 miles of crude oil pipelines, 2,500 miles of refined product pipelines and owns 42 refined products terminals with some 24 million barrels of oil storage capacity.

Roughly 85 to 90 percent of the partnership’s quarterly cash flow is locked in under long-term, fixed-rate contracts with major energy producers, so dramatic swings in oil and gas prices won’t threaten the MLP’s distribution. In fact, the company has boosted its payout in 25 consecutive quarters.

The company’s crude-oil pipeline network connects oilfields in West Texas and the key oil hub at Cushing, Okla., to the Gulf Coast and Sunoco Logistics’ massive crude oil terminal in Nederland, Texas.

Sunoco Logistics’ West Texas Gulf Expansion will add capacity to transport another 100,000 barrels of oil per day from West Texas to the Nederland terminal, accommodating rising oil output from the Permian Basin. Demand for additional pipeline capacity was so strong that the MLP was able to lock in cash flow under long-term contracts before the firm even broke ground on the project.

Sunoco Logistics has also enlarged the Nederland terminal, adding two additional tanks in the first quarter of 2011 and another two by early 2012. These projects will increase Nederland’s storage capacity to 22 million barrels of oil. As with the company’s pipelines, customers pay Sunoco Logistics a fee to guarantee access to the facility regardless of whether they use their contracted capacity.

In addition to storage fees, Sunoco Logistics earns income from ancillary services such as fuel blending–for example, blending ethanol with gasoline to meet regional requirements. The MLP is also expanding its butane blending business rapidly in response to rising production of this natural gas liquid (NGL).

Butane is cheap relative to oil and gasoline, incentivizing refiners to blend cheaper butane with more expensive gasoline. This business also features long-term contracts that guarantee minimum cash flows. Management plans to roll out this proprietary butane blending technology at all of the company’s terminal facilities over time.

The company is also expanding its exposure to NGLs via another project. The Marcellus Shale in Appalachia contains large quantities of natural gas and significant volumes of ethane, an NGL that’s used to make ethylene and other key petrochemicals. But the region lacks sufficient capacity to transport ethane from the region to petrochemical processing facilities.

Sunoco Logistics is working on an ethane pipeline that would collect volumes from the Marcellus and transport them to a major petrochemicals complex in Sarnia, Ontario. Management expects the first phase of this project to come online in 2012. The project would utilize an existing refined-product pipeline that’s already in place, reducing costs.

With this combination of reliable income and attractive growth prospects, it’s little wonder that investors loaded up on units of Sunoco Logistics Partners in 2011.

A surge in mergers and acquisitions also fueled investors’ interest in MLPs.

The first megadeal came after a bidding war between Energy Transfer Equity LP (NYSE: ETE)–general partner to Growth Portfolio holding Energy Transfer Partners LP (NYSE: ETP)–and Williams Companies (NYSE: WMB) for pipeline owner Southern Union (NYSE: SUG). Energy Transfer Equity won the battle but had to fork over $44 per unit, as opposed to its initial offer of $33 per unit.

The deal should close in the first quarter of 2012. The key remaining hurdle is approval from Missouri regulators, which are expected to issue a final recommendation on Jan. 6, 2012. But compared to the lengthy process federal regulators have imposed on electricity and telecom mergers, MLPs have had little problem gaining approval for their deals.

This year brought another major deal that involved transferring midstream assets from a corporate structure to the tax-advantaged MLP structure. Kinder Morgan (NYSE: KMI), general partner to Conservative Portfolio holding Kinder Morgan Energy Partners LP (NYSE: KMP), successfully bid for El Paso Corp (NYSE: EP). The Federal Trade Commission has asked for more information on the deal before it will officially approve the transaction. But the parties involve still expect the merger to close in the second quarter of 2012, which should provide ample time for El Paso to shed its exploration and production operations profitably. Kinder Morgan paid almost 40 percent more than El Paso’s shares fetched the day before the merger announcement.

Achieving New Balance

There’s one downside to the strong performance of our Conservative Portfolio and the megadeals of 2011: Takeover candidates now trade at a premium, and four of the six Portfolio holdings trade above our buy targets.

Investors sitting on big gains should remember that volatility can work both ways: Even the safest investments can take a hit in a broad selloff or when investors grow confident and rotate money from safe havens and into riskier fare. Never chase any of our Portfolio holdings beyond our buy targets, which reflect our estimation of the MLP’s market value based on its yield, prospects for distribution growth and the company’s ability to pay its distribution in difficult times.

Although we expect credit conditions and demand for new midstream capacity to remain sanguine in 2012 and beyond, adhering to our buy targets will pay off for patient investors and will ensure that you don’t overpay. MLPs are widely held by individual investors and are often subject to volatility, particularly when the stock market has the inevitable off day or one of our holdings issues new units. In 2012 we will continue to highlight these buying opportunities in our articles and Flash Alerts.

Investors should also consider paring their exposure to outperforming names whose returns have imbalanced their overall portfolio.

Units of Sunoco Logistics Partners, for example, have returned almost 150 percent since the beginning of 2008, while the Alerian MLP Index has gained about 70 percent and the S&P 500 has returned about 30 percent. It’s also a safe bet that every investor has a few losers in their portfolios, particularly with the persistent weakness in the financial sector and the recent rotation out of industrials and other cyclical industries.

Although we remain bullish on Sunoco Logistics Partners’ capacity to grow its distribution in coming years, the stock’s current valuation prices in perfection–event the slightest setback could send the units tumbling. At the same time, a yield of 4.5 percent is far less compelling than those offered by some of our other Portfolio holdings. We continue to rate Sunoco Logistics Partners a buy under 32. Investors with disproportionate exposure to the stocks should consider taking some profits off the table and reinvesting the proceeds in names that trade at favorable valuations.