The energy and commodity crush hasn’t been kind to resource investors. The crude oil swan dive from over $100 to under $30 has put pressure on energy producers not seen in decades. These low interest rates mean that money can be thrown into risk assets in a chase for pretty reasonable returns..
The unwinding has been unyielding, with some looking at the sell off as a bullish opportunity to buy low.
Master Limited Partnerships (MLP) for oil and gas proved popular in times of price performance. The MLP 8% average dividend was significantly higher than the benchmark 10 year Treasury yield of 2%.
What You Need to Know About Master Limited Partnerships
There are three main things you need to consider:
- Master Limited Partnerships trade on major exchanges, with the transparency and liquidity of common shares. The mechanics of buying and selling are the same as stocks or ETFs for listed MLPs.
- MLPs are a pass through vehicle that isn’t taxed on income at corporate level. Most of the cash is distributed to limited partners that in pay tax on the distribution income.
- MLP bankruptcy or units going to zero could be a tax issue. Debt restructuring in MLPs can create a liability for investors without a corresponding cash distribution.
Use This Tool to Track MLP Performance
The Alerian MLP ETF is designed to approximate price and yield performance of the benchmark Master Partnership industry index. Its intention is to give investors a way to track overall performance of the US energy infrastructure Master Limited Partnership asset class. The index is made up of 25 energy infrastructure MLPs. This fund’ll invest at least 90% of its total assets in securities.
Be aware that the MLP ETF may not offer the tax benefits of the MLPs themselves.
As they say, it’s not what you make, it’s what you keep that’s important.
