Investors are discovering excellent tax benefits for investing in MLPs. Many energy companies are offering 5% yields on investment, a number that is not necessarily setting the world on fire. But, through MLPs, the non-taxable yields are going further. Investors are able to avoid paying taxes on upwards of 80% or 90% of their total yield. It’s a system that is taking a 5% yield a lot further than it would go otherwise.
The benefits are obvious, but investors are still holding back. They have one big question. What is an MLP?
AN MLP is a Master Limited Partnership. It is a grouping of companies that are involved with the energy industry in a less direct manner. These entities may not necessarily hold or mine for oil, natural gas, or coal directly. They typically transport, store and maintain these assets for other companies. Investing in an MLP company is investing in the energy industry. The companies have very little impact on the commodity price in any direct way. They oversee the general transport and efficiency of the energy industries resources, without ever directly getting into the thick of it. This has an obvious benefit because of their lack of overhead demands. MLPS are gatekeepers within the industry.
This is a basic assessment of an MLP company, and the Master Limited Partnership is the umbrella-like status of all companies involved in this arena. Investors may see this as a weak opportunity. What benefit would a transport entity have in the energy space?
Savvy investors see that MLP’s are at an incredible advantage. They receive all the acclaim and benefits of the energy space without directly being involved. Furthermore (and perhaps more importantly), they own the transports. MLPS own the pipings (generally) and they own the transport vehicles. They even own the oil processing plants.
No energy in the mass-consumer arena will be able to get far without getting through the transportation ownership of MLPs. So why not try this now? Why not jump into an energy space that has all the added benefits without the added risks? Investors will see this development in energy unfold over the next decade, and early investors will reap deep yields and benefits.