Master Limited Partnerships (MLP's)

What is a Master Limited Partnership (MLP)?

master limited partnerships MLP's

A master limited partnership (MLP) is a publicly traded limited partnership that is focused on the real estate or natural resources sector.

Key features of MLPs

  • Publicly traded limited partnerships that trade on national stock exchanges, providing liquidity to investors
  • Do not pay federal corporate income taxes. Instead, profits and losses are passed through to the limited partners, who pay taxes on their share of the income
  • Required to generate at least 90% of income from qualifying sources like natural resources and real estate
  • Make cash distributions to limited partners, which often allows for higher yields compared to stocks and bonds

Benefits

  • Tax advantages since MLPs avoid double taxation on both the corporate and investor level
  • High, steady yields from contractual requirements to distribute cash to unit holders
  • Liquidity of a publicly traded security

Risks

  • Complex tax implications for investors
  • Concentrated exposure to real estate and natural resource sectors
  • Interest rate sensitivity since MLPs tend to carry higher levels of debt

In summary, MLPs allow individual investors to gain exposure to real asset partnerships while providing tax efficiencies, high income potential, and public market liquidity. But they also carry sector concentration and tax complexity.

 

Well Known MLP's

Here are some well-known examples of master limited partnerships (MLPs):

1. Enterprise Products Partners (EPD): One of the largest MLPs focused on midstream energy infrastructure like pipelines and storage facilities. It has a market capitalization over $50 billion.

2. MPLX LP (MPLX): An MLP affiliated with Marathon Petroleum focused on hydrocarbon logistics and transportation. It has a market cap over $30 billion, making it a top 5 MLP.

3. Energy Transfer (ET): A large MLP focused on natural gas and crude oil pipelines and storage. It has a market cap near $40 billion.

4. Magellan Midstream Partners (MMP): An MLP operating refined petroleum products pipelines and storage facilities. It has a market cap over $20 billion.

5. Plains All American Pipeline (PAA): An MLP operating crude oil and natural gas pipelines and storage with a market cap over $8 billion.

Some of the most well-known MLPs are focused on midstream energy infrastructure assets like pipelines, storage terminals, and transportation assets. Large MLPs like Enterprise Products, MPLX, and Energy Transfer have market capitalizations in the tens of billions of dollars.

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