MLPs: With tax benefits come tax complexities
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Several MLPs, or master limited partnerships, may play a major role in the future of natural gas in Pennsylvania, including that of the MarkWest energy plant in Chartiers, Washington County.
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When the interest paid on money market funds fell to near zero percent during the financial crisis of 2008, financial adviser Ken Kaszak began looking for alternative assets for his clients.
He stumbled upon a little-known class of investments known as master limited partnerships.
One of the first things he noticed about MLPs was that some companies in the investment category were yielding as much as 20 percent at that time, and that not only did the partnerships have tax-deferred status, but their stocks were also traded on major exchanges and were totally liquid.
The designation of "master limited partnerships" applies to businesses set up with a corporate structure that includes two types of partners: general partners and limited partners.
The limited partners provide capital and receive cash flow from the distributions. Their losses are limited to the amount they invest. General partners actually manage the MLP and are paid based on its performance.
For the most part, the $200 billion to $300 billion MLP market consists of energy infrastructure businesses that appeal to retirees as long-term investments because they often have little or no debt and their quarterly distributions can be spent by shareholders much like dividend income.
"Because I have been an oil and gas drilling proponent for a long time, I look back now and realize it was natural for me to trip over the MLP structure and incorporate them into client portfolios," said Mr. Kaszak, whose office is located on the South Side.
MLPs, which trade on major stock exchanges under symbols such as (KMP), (MWE), (APL) and (LINE), can be attractive to investors in search of income assets because they tend to have high yields -- currently in the range of 5 to 7 percent -- in comparison to savings accounts, money market funds and U.S. Treasury bonds, which yield significantly less.
First Published March 16, 2011 12:00 am
