A publicly traded partnership (common in energy infrastructure) that passes through most of its income to investors, offering high yields and tax-deferred distributions without corporate income tax at the entity level.
A Master Limited Partnership is a type of business entity often used in the oil and gas industry, especially for midstream assets like pipelines and storage. An MLP is structured as a partnership but its units (shares) trade on public exchanges, providing liquidity. MLPs enjoy a tax advantage: they generally do not pay corporate income tax; instead, the income is distributed to unit holders who then pay tax on it (often a portion of the payout is tax-deferred return of capital until the unit holder’s basis is recovered). Investors in MLPs typically receive quarterly distributions that are higher than average stock dividends. However, they also receive a K-1 tax form and may have to deal with more complex tax reporting. MLPs are popular for those seeking income from energy investments, but their unit prices can be sensitive to energy prices and interest rates.
MLPs offer a way for investors to access the energy sector's cash flows (such as pipeline tolls or oil & gas production income) with potentially generous payouts. They are particularly attractive for income-focused investors because of their high-yield distributions and tax benefits. However, investors should be aware of the tax complexities and the fact that MLP units, while yielding high income, can still be volatile and affected by broader market and commodity trends.
