Master Limited Partnership (MLP)

SeekingAlpha  Jul 15  Comment 
By Efficient Alpha: Minutes from the most recent meeting of the Federal Open Market Committee sent interest rates lower last week, despite several points that should lead rates higher over the rest of the year. Income investments, especially...
Motley Fool  Jul 11  Comment 
Both BreitBurn Energy Partners and Vanguard Energy Partners have surprisingly hidden upside to the Permian Basin.
SeekingAlpha  Jul 9  Comment 
By Tom Lydon: Several asset classes have benefited in earnest from the Federal Reserve's efforts to keep U.S. interest rates low for an extended period of time, though few have benefited in a manner similar to master limited partnerships...
SeekingAlpha  Jul 7  Comment 
By Stanford Chemist: Introduction Infrastructure master limited partnerships, or MLPs, have had a tremendous performance in the first half of 2014. The Alerian MLP ETF (AMLP) is up 9% year-to-date, while the corresponding ETNs, JPMorgan...
Motley Fool  Jul 6  Comment 
Phillips 66 and Valero both recently launched master limited partnerships. These MLPs have grown in price at an impressive rate. At their current price relative to distributable cash flow, are these MLPs worth their going price?
SeekingAlpha  Jul 5  Comment 
ByFactoids: Is it a good time to buy MLPs (or Master Limited Partnerships) like Enterprise Products Partners L.P. (EPD) or Kinder Morgan Energy Partners, L.P. (KMP)? I believe that the answer is a context sensitive "it depends," and will list some...
Motley Fool  Jul 3  Comment 
Phillips 66 Partners and Valero Energy Partners are on a tear in 2014 -- here's how they stack up head to head.
SeekingAlpha  Jul 2  Comment 
By Bryan Thomas: Royal Dutch Shell (RDS.A, RDS.B) announced that it is planning to spin off several U.S. pipelines into a publicly-traded partnership. This MLP, which will be called Shell Midstream Partners LP, will present a great opportunity for...
Motley Fool  Jun 30  Comment 
Energy-related master limited partnerships offer investors an opportunity to capitalize on America's growing energy production. Here's some help in how to evaluate them.
Motley Fool  Jun 26  Comment 
Over the next 21 years close to $1 trillion will be spent on energy infrastructure as North America's legendary energy bonanza continues. This article highlights one company and one MLPs that are poised to make investors rich, both in terms of...


This article is about Master Limited Partnerships. For the article on the company with ticker MLP, see Maui Land & Pineapple Company (MLP).

MLPs are not like regular corporations and do not get taxed on income. Instead they tend to return most of their income (typically 85 to 90%) to investors or partners through quarterly distributions. This shifts the tax responsibility to the partners, who are taxed at their ordinary income rates. Since ordinary income rates of investors are typically lower than the income tax rates of corporations, this proves to be advantageous to the MLPs and hence their investors.

A Master Limited Partnership (MLP) combines the tax benefits of a limited partnership with the advantages of a publicly-traded company. When you compare that rate against the rate you paid for your 2007 personal income, the tax advantages of MLPs are laid out in sharp relief.

Limited partners are only liable for the amount they've invested, unlike general partners who have unlimited personal liability. Limited partners invest capital and then receive the tax benefit of a personal income tax deduction for part of the loss during the development stages of the partnership when the costs exceed any revenues. Limited partnerships are common when businesses are in development stages, but MLPs are unique in that their units are traded publicly like stock, creating much more liquidity for investors.

Tax Consequences

Distribution income from MLPs is treated differently from dividend income from most stocks. At the end of the tax year, MLPs issue a Schedule K-1 to their investors that shows their share of the MLP's income and deductions. If the MLP pays out distributions in excess of the net taxable income it generates, as reported on the K-1, the distribution is classified as a "return of capital" and tax deferred until you sell your shares or units. Generally, an MLP's distributions will substantially exceed taxable income. Please note that income from MLPs is often taxable even in retirement accounts like 401Ks and IRAs if the income exceeds $1,000. Hence investors tend to shy away from MLPs in retirement accounts and they are also not preferred by institutions.

Indirect Methods to own MLPs

Master limited partnerships are restricted by the U.S. government to natural resource companies and some real estate enterprises. However, there are certain indirect methods of investing in MLPs and avoiding the tax complications. The MLP Kinder Morgan Energy Partners (KMP) also has a counterpart called Kinder Morgan Management (KMR) that holds units of KMP and whose quarterly payout is treated like a regular dividend instead of a partnership distribution. Another alternative is closed-end funds like Kayne Anderson MLP (KYN) and BlackRock Global Energy and Resources Trust (BGR). KYN is currently trading at a 15.22% premium to net asset value (NAV) and a yield of 9.17%. In contrast BGR is trading at a 13.16% discount to NAV and a yield of 8.61%.

Most MLPs tend to be concentrated in the energy sector but there are always exceptions such as the private equity firms The Blackstone Group (BX) and Fortress Investment Group (FIG), which also happen to be set up as MLPs.

Internal financing

The partners (KMP) have to pay out all of their earnings. So the only way any MLP can get cash is to borrow it, or sell something. Kinder partners (KMP) have to accumulate the cash as if we were paying in cash, so it’s really equivalent to a giant DRIP program, which leaves a lot of cash at KMP.

Investors in the Kinder management (KMR), do not receive cash distributions, but receive shares proportional to the ownership interest they have in the stock. This allows Kinder partners (KMP) to issue Kinder management (KMR), shares, and retain that cash.

The cash distributions for Kinder partners (KMP) and the Kinder management (KMR), are equal; the only difference is that Kinder management (KMR), distributions are paid in the form of additional shares, reducing the need for the Kinder partners (KMP) to raise public equity, or borrow funds.

Rather than receiving and distributing cash, Kinder management (KMR), receives and passes through a dividend in shares known as paid-in-kind distributions. Kinder partners (KMP) the cash that would have been paid out as dividends, to buy assets from Kinder Morgan incorporated (KMI), and finance acquisitions internally. [1]

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki