Is There a Pipeline in Your Future? Understanding MLPs.

Wednesday, August 1, 2012


Master Limited Partnerships, or MLPs as they are called, are publicly traded partnerships primarily focused on the energy infrastructure space. They offer high yields and potential growth for investors making them attractive in any climate, but particularly in today’s low interest rate world. MLPs trade on major exchanges such as the New York Stock Exchange and NASDAQ, just like a stock. The difference, however, is that instead of buying a common share, you are buying units in a managed limited partnership. Another difference is that to encourage energy infrastructure development, MLPs do not pay tax at the entity level provided 90% of income comes from natural resources production/ transportation/storage, real estate, dividends or interest income. Instead the income flows through to unit holders where taxes are paid avoiding the double taxation issue impacting corporations. There are tax deferral features that make MLPs potentially even more tax advantaged depending on how you choose to own them but that is a more detailed discussion than we have time or space to discuss here.

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