Sunday, January 16, 2011

High Yield Master Limited Partnerships

There is a high income producing investment that is an unusual animal, called the Master Limited Partnership and also referred to as an Income Partnership. These investments are not corporations, not exchange traded funds, and not trusts such as real estate investment trusts. They are partnerships with a general partner and many limited partnership units which are traded on a major stock exchange.

Let's first start with the disadvantages. First, you won't get a 1099-DIV form for filing your taxes on the partnership income. You will instead receive a K-1 Form which involves more tax forms to attach to your Form 1040. This means that if you prepare your own taxes, it will take more time. If you have an accountant prepare your taxes, he or she may charge more due to the extra time involved with the K-1 . Also, you shouldn't invest in partnerships through a retirement plan such as an IRA due to Unrelated Business Income Tax issues (your tax preparer can provide you with more details).

Now the advantages. Partnerships can provide high yields which may be partly or completely tax sheltered. They distribute substantially all of their income, thereby avoiding double taxation. Income distributions are fairly high and are paid quarterly.

Most of these partnerships are producers and distributors of oil and gas. just updated its list of high yield US Master Limited Partnerships, and found over 15 with yields above 5%.

As an example, Boardwalk Pipeline Partners, LP (BWP), a natural gas pipeline owner and operator, yields 6.4% and trades at twenty times forward earnings. The company has been making quarterly payouts since 2006.

NuStar Energy L.P. (NS) stores transports, and markets fuels. It has a yield of 6.3%, and has a forward price to earnings ratio of 21. Quarterly distributions have been made since 2001.

Buckeye Partners LP (BPL) is an operator of petroleum product pipelines. The yield is 5.7%, paying distributions since 1994, and the forward PE is 20.

For a free downloadable list of these high yield partnerships with yields as high as 7%, go to

Disclosure: Author did not own any of the above at the time the article was written.


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