resourceman

Why Buy MLPs? Part II

Avi, I went back and read your first bit on MLP,s and make the following comments: in the list of MLP,s you have Linn Energy LLC UTS posted. This is not a MLP--it is an Oil & Gas Royalty Trust which has a still different tax treatment--unit holders receive a 1099-Royalty & can deduct depletion allowance & taxes. If you,re including Royalty Trusts in your analysis , there are much better ones out there. Linn Energy did particularly poor on their 2Q earnings--they lost $773,400,000 on their O / G commodity hedges--I,ve stayed away from them also because they,re royalty assets are in states that tax royalty income. Two Trusts I recommend are BPT ( B P Prudhoe Bay Roy Tr. ) & PBT ( Permian Basin Roy Tr. ) . PBT has all of it,s royalty interests in the state of Texas which has no income tax & does not tax royalty trust income. I,ve got some royalty interests in New Mexico & they,re killing me with Taxes ~8% off the top. When investing in O/G Roy Trusts one must consider which states the royalty interest is in. Whereas pipeline & terminal type MLP.s are basically toll-takers & their distributions are more stable , the drawback with Roy Trusts is their payments do track the price of the commodity . But on average , Roy Trusts today pay about twice the yield that MLP,s do. Could say you,re being compensated for the added risk of commodity price changes.