MLP Investments: The Best Kept Secret of Individual Investors
MLP Investments offer individual investors an excellent way to realize substantial yield while partaking in this hidden gem of the investment world since many institutional firms aren't allowed to participate. An MLP (Master Limited Partnership) masterfully benefits from the Limited Partnership tax structure while trading like an individual stock. Most MLPs make their business in the commodities and real estate sectors.
MLPs are the Best Kept Secret of Individual Investors
What makes MLPs so attractive to investors is that the way they're structured, they must return 90% of total income to shareholders via dividend payments. Since there is no tax at the company level, Master Limited Partnerships essentially enjoy a lower cost of capital and avoid dividend double taxation. This often results in yields of anywhere from 6%-12% on a sustained basis.
Investment pools that are already tax-exempt like pensions and 401K plans are not allowed to hold MLPs since distributions are considered to be unrelated business taxable income (UBTI) - which is income unrelated to the activity that gives the fund tax-exempt status to begin with. For this reason, it's general high net worth clients and savvy retail investors that own MLPs.Investors should be aware of some special tax considerations related to MLPs though. They will get a K-1 form in the mail annually, which needs to be transcribed into their tax software or delivered to their accountant. The concern of many investors is that the K-1 often comes late in the season, in February or March. For tax procrastinators, that's not a problem. For early birds waiting on the K-1, that may be cause for concern.
The preceding is applicable to traditional taxable brokerage accounts. For information on holding an MLP in a Roth IRA or Traditional IRA account, see below.
See This List of MLPs 80 Strong and Counting
MLP IRA Tax Treatment Explained
MLP ETFs for High Yield and Diversification
High Yield ETFs
Real Estate Investment Trusts (REITs)
High Dividend Stocks
Return from MLP Investments to High Yield Passive Income Home