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A Master Limited Partnership, or MLP, is a type of partnership that is publicly traded through a securities exchange. MLPs combine the tax structure of limited partnerships with the liquidity of publicly traded securities. Generally, a private partnership is relatively illiquid when compared to a public MLP or other equities.

MLPs are primarily known for providing investors, or the limited partners, with distributions that are similar to dividends, but are taxed differently. It is expected that the distribution growth of pipeline MLPs can grow at a rate at or ahead of inflation.

Most MLPs involve oil and gas, either as pipeline businesses that earn relatively stable income from the transport fees for oil, gasoline and natural gas. Other oil and gas MLPs are engaged in exploration and production as well.

Oil and gas pipeline MLP revenue is primarily based on the amount of product transported, and not on the price at which it sells. As a result, pipeline MLPs shouldn't be highly sensitive or correlated to commodity price fluctuations, except when they are significant enough to affect demand. Conversely, exploration and production MLPs are highly sensitive to such commodity price changes, as well as to their own ability to produce.

Below are the recent performance rates and present yield for five MLPs that are traded within the United States with market capitalizations of at least $10 billion and yields of at least 4.5 percent: Energy Transfer Partners LP (ETP), Enterprise Products Partners LP (EPD), Kinder Morgan Energy Partners LP (KMP), ONEOK Partners LP (OKS) and Williams Partners LP (WPZ).

2011 was a broadly positive year for most of the larger pipeline MLPs, with a few exceptions. Nonetheless, all of these MLPs are underperforming the market so far in 2012. Through the first three months of 2012, these five MLPs averaged a depreciation of 1.36 percent versus the S&P 500 appreciating over 12 percent.

Even the best performing listed MLP underperformed the performance of the average. Still, over the last twelve months, theses MLPs have, on average, outperformed the S&P 500 by about five percent before factoring yield outperformance.

Certain MLPs that are more involved with exploration rather than transportation are often highly sensitive to oil price. Pipelines may be transporting different forms of petroleum such as oil, natural gas and liquefied gas, each with their own supply and demand issues. Sometimes, pipeline MLPs sell off when oil or gas spikes down, even where the business itself is not necessarily affected by the commodity price so much as by demand for it.

Because so many individuals allocate into MLPs for the yield, MLPs may sometimes be affected by fixed income yield fluctuations. The recent concerns over potential spiking of US interest rates could make pipeline yields less appealing by comparison.

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 his or her 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 one's 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.

Source: Q1 Performance Review For 5 High-Yield, Large-Cap MLPs