Investors on the hunt for a new source of steady, reliable income might want to look into master limited partnerships (MLPs). Register here for free April 3 Retail Investors Conference on MLPs that just may help you decide whether they belong in your portfolio.
Mary S. Lyman, executive director, of the National Association of Publicly Traded Partnerships, will be the keynote speaker. She’ll be joined by a full lineup of presenters (see the list below).
Lyman writes in a recent paper that many investors favor MLPs because “they offer the affordability and liquidity of corporate stocks and bonds combined with the advantages of investing in a partnership.” MLPs offer quarterly cash distributions, with the possibility of distribution growth and share price appreciation, she says, as well as yields averaging 6.6 percent.
What’s an MLP?
Lyman continues: “A more accurate name for an MLP is a publicly traded partnership (PTP), the term used in the tax code. MLPs are a limited partnerships (or LLCs choosing partnership taxation) that are traded on exchanges similar to corporate stock. A share in an MLP is called a ‘unit,’ and its shareholders are referred to as ‘unitholders.’ As limited partnerships, MLPs have a general partner that manages the MLP, and limited partners — the common unitholders — who contribute capital and play no role in management. Those that are LLCs have no general partner, and their unitholders, while also contributing capital, have voting rights more like those of corporate shareholders.”
“The most important distinction between MLPs and corporations is the way that they and their investors are taxed. … The MLP’s income, gain, deductions, loss and other tax items are allocated for tax purposes among all the unitholders, each of whom pays tax on his share of net income,” Lyman writes, noting that investors should be aware of these tax issues.
“For this reason, most publicly traded partnerships operate in various natural resources industries,” she adds. “It is the approximately 111 MLPs involved in natural resource related businesses that investors have found most attractive and that analysts have followed with most interest.”
Typical Types of MLPs
Following are MLPs investors may encounter, although MLPs do exist in other industries.
- Midstream: Builders of pipelines and other infrastructure handling the oil and natural gas produced from shale and other domestic energy deposits. These MLPs are less dependent on commodity prices.
- Upstream: Oil and gas producers, including key players in the shale industry. Although often referred to as exploration and production MLPs, they tend not to engage in exploration, but acquire and produce from proven reserves. “Because their cash flow is far more dependent on commodity prices than that of midstream MLPs, the upstream MLPs engage in extensive hedging programs to help ensure that their cash flow remains at a level that will sustain distributions,” Lyman says.
- Downstream: This includes refining, marketing, wholesale distribution and any activity but retail sales. MLPs here include wholesale distributors of gasoline, heating oil and other refined fuel; refiners; and producers of specialty petroleum products.
- Oilfield Services: MLPs that don’t engage in oil and gas production, but provide services to companies that do.
- Propane: A sizable number of MLPs are engaged in propane distribution. Propane, a byproduct of natural gas processing and petroleum refining, is used for heating in residential and commercial buildings.
MLP Virtual Investor Conference Presenters
Representatives of the following businesses will speak at the April 3 conference and field your questions. The conference may also be viewed as an archived event.
- Chickasaw Capital Management
- OCI Partnership
- CVR Partners LP
- Tortoise Capital Advisors
- StoneMor Partners L.P.