Master limited partnerships (MLPs) returned nearly 14 percent per year for the last 10 years, through 2003. Those returns were higher than those posted by stocks or real estate investment trusts (REITs), over the last decade, with less volatility.
MLPs are companies with general partners, who manage the business operations, and limited partners, who are passive investors. They trade publicly, often on the New York Stock Exchange. MLPs can avoid paying corporate taxes if they get 90 percent of their income from natural resources and related activities. Therefore, most MLPs are involved in energy and other natural resources.
By avoiding corporate taxes, MLPs have more income to distribute to investors. Yields currently are in the 7 percent area, although they vary among different MLPs. What’s more, investors get tax advantages from MLP distributions because those distributions are largely tax-free until the shares are sold.
MLPs that have produced impressive returns for investors include Kinder Morgan Energy Partners, GulfTerra Energy Partners, and TEPPCO Partners.
