Our How They Rate table tracks every US-based master limited partnership, as well as indexes and closed-end funds that hold MLPs–a coverage universe that comprises over 110 securities. Given this breadth, it’s no surprise that more than a few don’t make the grade. In fact, we currently rate a quarter of what we cover as outright sells.

On the other hand, the 17 MLPs in the Aggressive, Conservative and Growth Portfolios, as well as other buy-rated fare in How They Rate are ripe for purchase. That’s despite the fact that several have run up considerably from initial recommendations made only a few months or even weeks ago.

Many readers ask why we focus on MLPs like Enterprise Products Partners (NYSE: EPD), which yields only a little over 7 percent, instead of names like AllianceBernstein Holding (NYSE: AB) and Cheniere Energy Partners (NYSE: CQP), which yield over 10 and nearly 16 percent, respectively.

The answer is underlying business strength. No distribution is worth its salt unless the company writing the checks is solid and growing. MLPs enjoy rich tax advantages that allow them to pay much higher distributions than ordinary corporations. But only reliable cash flow guarantees a payout’s stability. Investors who chase high yields without scrutinizing the underlying company’s bottom line run the risk of dividend cuts–or worse.

Yield-chasing investors have struggled over the past few years. In early 2007, changes in tax rules suddenly increased institutional interest in MLPs, resulting in a wave of initial public offerings as Wall Street rushed to cash in. And unfortunately, more than a few of the IPOs were heavily laden with debt and/or simply not in businesses conducive to paying big dividends.

At this point, the vicious bear market and credit crunch has run out most of the weaklings. Nonetheless, the group isn’t completely free of potential disasters.

For example, as we’ve pointed out before, AllianceBernstein is a financial construct that makes economic sense only because of carried interest. That’s the one current tax advantage of US MLPs that appears on President Obama’s hit list.

Even in a worst case, AllianceBernstein would simply restructure. But there’s no way it would pay a dividend above 10 percent without the advantage of carried interest. And that would almost certainly mean the units would revisit the lows of earlier this year, barely $10 a unit.

As for Cheniere, the company has banked its entire future on rising volumes of liquefied natural gas (LNG) imports into the US–a calculation management made earlier this decade when North American gas supplies appeared to be waning and prices were surging. Since then, technology has made production of shale gas increasingly economic, even as gas prices have plummeted in the face of recession.

The result has been Cheniere’s worst nightmare: Fading demand for LNG in North America just as it’s bringing new facilities into operation. The MLP does have capacity contracts with Chevron (NYSE: CVX) and Total (NYSE: TOT). But interest costs from financing the new assets are up 115 percent over the last 12 months and operating expenses are up 122 percent.

Cheniere didn’t break out distributable cash flow in its third-quarter results, presenting only net income–an extremely murky figure in MLP accounting. Nonetheless, its payout ratio based on cash flow provided by operating activities was 125 percent for the last nine months.

Not covering distributions is never a good sign for safety and explains why the MLP’s yield is so high–higher yields compensate for higher risk. And if Cheniere is forced to cut, these units are headed back toward the January low of $4.02.

The rest of our sell recommendations generally fall into one of three categories. First, we advise selling any MLPs whose dividends depend on carried interest. That includes any of those holding financial instruments–for example, municipal bonds.

Second, we avoid all MLPs that don’t pay distributions. Not only is there no income incentive to hold, but there’s also no greater sign of weakness than the lack of a payout. Third, we’ve weeded some out simply because there are better alternatives in their sectors. That’s also the reason for the majority of our hold recommendations, though that decision is more often than not based on a price that looks to be too high to justify a buy.

What to Buy

That’s enough for the bad and the ugly. Let’s shift our focus to our buy-rated recommendations. Again, the underlying businesses distinguish a buy from a sell; if the underlying business is defensible and growing, the distribution and unit price will rise over time. That’s the common denominator of all of our Portfolio holdings.

This week, I’ll put the Growth Portfolio holdings under the microscope. This group derives the lion’s share of its cash flow from fee-based energy infrastructure assets. Unlike the Conservative Holdings, however, operations do have some exposure to energy prices, mostly from the profit spreads realized from the throughput of their assets. As a result, they offer somewhat higher risk and potential reward than the Conservative group, though somewhat less risk and reward potential than the Aggressive group.

The good news is all of our Growth Portfolio recommendations posted solid third-quarter results. And judging from actions taken since and management’s statements, they look to be well positioned for the fourth quarter and beyond.

Kayne Anderson Energy Total Return (NYSE: KYE) is a closed-end fund that owns a broad mix of MLPs. Taken individually, the MLPs in the fund’s portfolio would fall into Aggressive, Growth and Conservative categories; given the mix of securities, the fund’s risk/reward profile best fits into our Growth Portfolio.

Kayne is more attractive than its peers for one major reason: It sells at a premium of just 7.5 percent to net asset value. That’s in comparison to a premium of 16 percent for rival, Tortoise Energy Infrastructure (NYSE: TYG).

Closed-end funds generally trade at premiums because they enable investors to hold MLPs without having to file Form K-1s or pay unrelated business taxable income (UBTI), which makes them suitable for IRAs and other retirement accounts.

Note, however, that we generally prefer buying and holding individual MLPs outside IRAs to take full advantage of the tax deferral potential for distributions. Our main gripe is that if you own closed-end funds or MLPs inside IRAs, you lose the benefit of return of capital that enables you to postpone paying any taxes on distributions until you sell. You simply pay tax at your usual rate when you withdraw funds.

In contrast, if you hold MLPs outside of IRAs, the return of capital amount of the payout is subtracted from your cost basis each year. No tax is paid until you sell. And if you will MLPs to your heirs, the cost basis will adjust upward to the current price, potentially pushing any tax burden off indefinitely.

Turning to earnings news, Inergy (NSDQ: NRGY) reported fiscal fourth-quarter and 2009 earnings on November 30. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)–basically operating cash flow–rose 24.2 percent for the year, while distributable cash flow per share surged to $2.92 from $2.60 a year ago.

That’s a coverage ratio of about 1.1-to-1 for the current payout. Inergy has increased its distribution in 31 consecutive quarters. The current distribution is 6.3 percent higher than a year ago, which is right in line with the three-year growth rate.

Looking ahead, management expects solid growth to continue for its propane distribution business, budding operations in gas storage and transportation and natural gas liquids. The MLP expects the latter to contribute 40 percent of cash earnings in 2010, up from 28 percent this year and basically zero five years ago. And management expects to benefit from the ongoing consolidation of these business lines as well, which it currently describes as “fragmented.”

All of Inergy’s businesses are exceptionally steady. The midstream operations have little or no commodity price exposure and are tied to the accelerating growth in the Marcellus Shale region. Meanwhile, 70 percent of its propane business is residential, and 90 percent of those customers utilize tanks that are owned and operated by the MLP, making it very difficult for them to switch to competitors. Finally, the MLP has few debt or credit concerns, with no major maturities until 2013.

Inergy’s unit price has gone nowhere but up since we added it to the Growth Portfolio last July. The only downturn occurred when the MLP offered 3.5 million units in early August, in part to finance its expansion into midstream assets.

As we’ve pointed out before, equity issues typically trigger selloffs in MLPs, as investors worry about potential dilution if the money isn’t put to good use. Given management’s expertise and an abundance of attractive acquisition opportunities, these fears are almost always groundless. That was particularly the case for Inergy’s secondary offering; 3.5 units represented an increase of only about 6 percent on the overall base.

Early August was a fabulous time to buy Inergy units, which are up roughly 30 percent from that point. If you missed out, there’s still good news: As long as there are promising new projects, MLPs will issue units and misguided selloffs will create buying opportunities. In the meantime, Inergy still yields nearly 8 percent and is a buy up to 34.

Teekay LNG Partners (NYSE: TGP) has yet to fully recover from a one-day selloff in mid-November that followed the issue of 3.5 million units. The offer represented a roughly a 9 percent increase in the number of outstanding units. Ultimately, however, it represents the same kind of wealth-building value.

The MLP posted solid third-quarter distributable cash flow of $29.2 million, up slightly from a year ago. That covered the distribution by a solid 1.2-to-1 margin.

Improved results were due to the acquisition of the first of five Skaugen LPG/Multigas carriers in April 2009 and the purchase of the Tangguh LNG carriers in August. That was offset by the drydockings of two LNG carriers. In general, the long-term nature of its contracts and high quality of its assets have protected Teekay from the ups and downs of the LNG industry, which continue to devastate facilities-based MLPs in the US like sell-rated Cheniere Energy Partners (AMEX: CQP).

Moreover, Teekay expects to add three more vessels in 2010 under 15-year, fixed-rate charters to builder Skaugen. It also owns 33 percent of a consortium that will charter four new-build LNG carriers for 20 years at the Angola LNG project. Angola LNG is being developed by units of super oils Chevron (NYSE: CVX), state-owned Sonangol, BP (NYSE: BP), Total (NYSE: TOT) and ENI (NYSE: E), some of the most reliable customers on the planet.

That speaks volumes for the quality and potential growth of Teekay’s cash flows and distributions. Meanwhile, the MLP has no significant debt maturities until 2018, providing plenty of financial flexibility.

Teekay has been one of our biggest winners since we added it to the Growth Portfolio member in May. The MLP, however, still yields well over 9 percent and sells for just 1.58 times book value. That’s good enough to keep Teekay LNG Partners a buy up to 27.

DCP Midstream Partners (NYSE: DPM) has earned investment grade credit rating from S&P. Citing “a sizeable portion of fee-based revenue, good geographic diversity and a multi-year commodity hedging policy,” the ratings agency awarded the midstream asset MLP a rating of BBB- with a stable outlook.

One immediate impact should be a lower cost of capital for DCP, which is 35 percent owned by a joint venture between Spectra Energy (NYSE: SE) and ConocoPhillips (NYSE: COP). That, in turn, should advance management’s goal of adding to fee-based assets, such as the Michigan gathering and treating assets picked up in November. And the result should be more dividend security and growth for the DCP Midstream Partners, which rates a buy up to 27.

Energy Transfer Partners’ (NYSE: ETP) CFO Martin Salinas presented his MLP’s case last week at Wells Fargo’s energy industry symposium. In his comments, he outlined the basic business fundamentals and highlighted a series of projects to add operating assets and income in 2010. High on the list is the Tiger Pipeline, which is expected to become operational next year and is exceeding projections based on costs and contracts signed.

Looking ahead, Salinas also noted Energy Transfer’s “conservative approach” to hedging over the last six quarters, which should reduce cash flow volatility associated with energy prices–the culprit for the MLP’s ups and downs in recent quarters. That chiefly consists of profit spreads on the throughput of the MLP’s various facilities.

Energy Transfer also remains committed to seeking new assets to buy, including other MLPs. And management expects to raise the distribution again next year from the quarterly rate of 89.375 cents in place since the August 14, 2008, payment. That should also ignite total returns at the MLP, which is up only slightly since we added it to the Growth Portfolio.

Buy Energy Transfer Partners up to 45 if you haven’t yet. The general partner Energy Transfer Equity (NYSE: ETE) is a slightly higher risk/reward alternative, as its distribution depends on the cash kicked upstairs from the LP. Buy ETE up to 32.