Performance Review of 7 Mid And Large Cap Oil And Gas MLPs Yielding Over 5%

by: Zvi Bar

A Master Limited Partnership (“MLP”) is a type of partnership that is publicly traded on a securities exchange. MLPs combine the tax structure of limited partnerships with the liquidity of publicly traded securities. Usually, private partnerships are relatively illiquid compared to public equities. Most MLPs are publicly traded oil and gas pipeline businesses that earn stable income from the transport of oil, gasoline and natural gas.

Many oil & gas MLPs derive their revenue based on the amount of product transported and are not sensitive to price fluctuations except where they affect demand. Some MLPs involve other natural resources, and certain other industries, but oil and gas are the most common MLPs.

MLPs usually provide their investors, the limited partners, with distributions that are similar to dividends, but taxed differently. It is expected that the distribution growth of MLPs can grow at a rate at or ahead of inflation, based upon energy demand and price growth.

Below are the recent performance rates and present yield for seven MLPs that are traded within the United States and that have market capitalizations of at least $5 billion and yields of at least 5%.

Click to enlarge
(Click to enlarge)

MLPs do often sell off when oil goes down even where the business itself is not necessarily hurt by the commodity drop. Certain MLPs that are more involved with exploration rather than transportation are more sensitive to oil price, while the purer pipelines could see increased demand at lower prices. Additionally, the exploratory MLPs can be hyper-sensitive to oil spikes in either direction.

MLPs are partnerships, so they do not pay corporate income taxes. The tax liability of the MLP is passed on to its unit holders. Each investor receives a K-1 statement that details their share of the partnership's net income. That income is usually then taxed at the investor's individual tax rate. These distributions may also reduce ones cost basis.

Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.