Master Limited Partnerships
Master limited partnership (MLP) investments offer a simple value proposition: tax-advantaged high yields and strong recession-resistant growth potential.
MLPs allow investors to defer much of their personal income tax liability for years into the future or, in many cases, indefinitely. Unlike regular corporations, a master limited partnership doesn’t pay traditional corporate-level tax. Instead, these partnerships pass through the majority of their income to investors in the form of regular quarterly distributions. In other words, 80 to 90 percent of the distribution you receive from the MLP is tax-deferred.
Learn more about how to add master limited partnerships to your portfolio with the latest in-depth analysis in the archive below. For a detailed understanding of the MLPs, including what they do, how they are taxed and the best plays to consider for your portfolio, check out our free guide: MLPs: High Yields and Low Taxes.
My favorite long-term income play in the energy patch is a group of publicly traded partnerships organized either as master limited partnerships (MLPs) or limited liability companies (LLCs). The beauty of MLPs and LLCs is that they pay no tax at the entity level--they pay no corporate tax. This allows firms organized in this manner to pass through the vast majority of their cash flows to unitholders--the partnership equivalent of shareholders--as dividend distributions.
A review of some of the key calls and investment themes of 2006; the favorites of which remain nuclear power and biofuels. There is also a discussion of MLPs, one of the most-overlooked and misunderstood asset classes in the market today for income investors.
According to the International Energy Agency (IEA), the world will have to spend more than $20 trillion on energy infrastructure and development during the next 25 years just to meet growing worldwide demand.
The major US averages have been on a rough ride since early May; the primary concern for the market remains the possibility of an economic slowdown or recession in the US next year. While a slowdown does little to change the longer-term bullish picture for the energy patch, energy investors cannot afford to totally ignore the downside risks over the next few months. This is an excellent opportunity to increase exposure to MLPs and integrated producers, and to take profits from underperforming sectors.
The oil and gas pipeline companies have been a longstanding bullish theme within The Energy Strategist. For the most part, companies in the oil and gas pipeline industry are organized as master limited partnerships (MLPs), publicly traded partnerships that are designed to offer a steady stream of income to shareholders. Few would have predicted the wide divergence in performance between oil and gas prices this year, with crude a few dollars off its high and natural gas at less than half their fall 2005 peak. This is more to due with excess supply than reduced demand.
None of the usual go-to sectors for investors seeking income are offering high yields, however, the energy sector offers an alternative. Publicly traded master limited partnerships (MLPs) can hand investors high tax-advantaged yields, outstanding growth opportunities and relatively low exposure to volatile oil and gas prices.
Publicly traded master limited partnerships (MLPs) can hand investors high tax-advantaged yields, outstanding growth opportunities and relatively low exposure to volatile oil and gas prices. MLPs are traded right on the major US exchanges just like common stocks. And the better-placed MLPS offer annual distribution growth (payout increases) of 5 to 10 percent on top of yields between 6 and 8 percent.