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The Biggest Payouts Allowed by US Law

|Includes: Enterprise Products Partners L.P (EPD)

Do you know about Master Limited Partnership (MLPs)?

MLPs are business entities, much like an LLC or Corporation. However, in the case of MLPs, ownership is divided between two groups: the general partner and limited partners. The general partner holds most of the voting rights for the business and oversees operations. The limited partners have little voting rights and are not responsible for overseeing the business.

However, BOTH groups get paid in a BIG way.

You see, MLPs pay little to no corporate taxes… provided they pay out most of their earnings to investors. Thus, it’s a win-win situation- the business dramatically reduces its capital costs, and the shareholders receive massive quarterly payouts.

And unlike corporate dividends which are taxed twice once at the corporate level and again on your personal income taxes MLP distributions are only taxed once. Thus, the actual payout you receive is substantially larger.

Let me give you an example…

For every $100 in pretax profits a normal corporation makes, it typically pays about $35 in federal corporate tax and another $5 or so in state taxes.

Now, even if the company paid out the remaining $60 via a dividend to shareholders (it wouldn’t), the shareholders would still have to pay out an additional 45% in state and federal tax… leaving only $33 in income after taxes.

Thus, more than two thirds of that initial profit goes to the tax-man.

However, with MLPs, the entire $100 is paid out to investors… that is, the company pays no corporate taxes at all. So the payouts are only taxed once at the personal level. The end result is that with MLP pay-outs, $55 of that original $100 goes in your pocket: that’s nearly twice the payout you’d receive from a normal corporate dividend ($33).

Simply put, MLPs are the only corporate payouts in which you take home more money than the government.  As such, they offer some of the largest payouts available to ordinary investors today.

Just ask Dan Duncan.

With a net worth of $5.9 billion, Dan is the richest man in Houston Texas: the capital of oil billionaires. On average Dan makes more than $150 million PER YEAR. In 2007 alone, he pocketed nearly $360 million.

To put that number into perspective, it’s:

  • Nearly four times as much as Merrill Lynch’s CEO
  • More than 20 times as much as the CEO of Exxon Mobil
  • More than 17 times as much as the CEO of General Electric

In fact, if you added up the payouts from all three CEOs, you wouldn’t even hit half of Dan’s paycheck.

However, Dan doesn’t make this money from some enormous salary or greedy stock options deal. In fact, Dan doesn’t even have a salary. Instead, he collects this enormous payouts strictly from distributions based on his ownership of the company.

So unlike the crooks on Wall Street, Dan’s interests are entirely 100% aligned with his shareholders. And he actually pays them twice as much as he makes himself. This isn’t a recent development either. Dan’s followed this arrangement every year since his company started making payouts:

 

 

2005

2006

2007

2008

Duncan Payout

$236 million

$278 million

$315 million

$360 million

Payout to Shareholders

$472 million

$556 million

$631 million

$726 million

Since 2001, Dan’s company has paid out a total of $4.7 billion, two thirds ($3.1 billion) of which went to shareholders. He’s also pocketed a cool $1.6 billion for himself.

To learn more about MLPs and Dan Duncan, you can access my FREE Special Report detailing these issues: The Billionaire's CD. Just go to gainspainscapital.com.

Good Investing,

Paul Learton