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What is a 'Master Limited Partnership - MLP'

A unitholder's initial tax basis in MLP units is generally the amount he or she pays for the units.

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The unitholder's basis is usually then decreased with each distribution and allocation for losses or deductions, and the basis is increased for each allocation of income. A portion of certain distributions may qualify as a return of the investor's capital , thereby reducing the unitholder's taxable basis.

When an MLP pays more in distributions than it earns in taxable income , the unitholder's tax basis is decreased by the difference between the cash received and the MLP's taxable income. When the unitholder sells his or her units, any gain on the sale is taxed at the unitholder's ordinary income tax rate. This Schedule K-1 reports the unitholder's allocated income, gain, loss, deduction , and credits.

If the unitholder's taxable partnership income for the year is negative, then this is considered a passive loss under the tax code and may not be used to offset income from other sources.

Instead, the passive loss may only be used to offset future income from the same MLP. Although unitholders are generally limited in their liability , similar to a corporation's shareholders, creditors typically have the right to seek the return of distributions made to unitholders if the liability in question arose before the distribution was paid. This liability stays attached to the unitholder even after he or she sells the units.

Master limited partnership - Wikipedia

The fact that master limited partnerships are not subject to income tax means that more cash is available for distributions than would be available had the company incorporated. This generally makes MLP units worth more than similar shares of a corporation.

The Full List of All 115 MLPs: How To Prosper With Master Limited Partnerships

With this in mind, it is particularly important for investors to carefully evaluate whether an MLP is able to meet its current distribution obligations and whether it will be able to continue and possibly even raise its future distributions. If a particular ir sports a distributable cash flow coverage ratio of 1: There you'll find more information about what to expect from these securities when you invest.

Our in-depth tools give millions of people across the globe highly detailed and thoroughly explained answers to their most important financial questions. Each month, more than 1 million visitors in countries across the globe turn to InvestingAnswers. Financial Dictionary Calculators Articles. Despite the fact that the sector does not provide positive returns to its investors, it is definitely not the same thing with leverage - as we can see above.

Master limited partnership

Of course, leverage is a double-edged sword because it might look great when the company is achieving great results and distributing big returns, but when it starts to sink, things start to get a little bit gloomy, I would say. What I mean is that the higher debt brings a bigger risk. The table shows the funds with the highest distribution rate on price. Additionally, we have included here the distribution rate based on the net asset value.

Most of the market participants find the second metric to be more important. For me, the distribution rate of a fund is not the most important metric to look at. I think that everybody has a clear vision of what is more important to seek before we enter a trade. Of course, the return on net asset value is what we should look at when we decide to invest. The main reason of these weekly reviews is to track how the sector and its instruments are performing and eventually to find an opportunity where we can make some fresh money.

Weekly Review: Master Limited Partnership CEFs - So Many 'BUY' Opportunities

Unfortunately, here in the MLP sector, we observe quite a rapid slip in between the different funds. At some point, this 'free-fall' will stop and there will be many long-term opportunities. At ' Trade With Beta ' we also pay close attention to Closed-end Funds and are always keeping an eye on them for directional and arbitrage opportunities created by market price deviations. As you can guess, timing is crucial in these kinds of trades; therefore, you are welcome to join us for early access and the discussions accompanying this kind of trades.

Should You Hold MLPs for Life?

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Summary Review of where Master Limited Partnership closed-end funds and their benchmarks ended last week.


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Recap of news related to the group, if any. Comparison of the funds using several important metrics.