Every day, a veritable ocean of oil cascades through thousands of miles of pipelines crisscrossing America, making its way from shipping ports and exploration fields to refineries and end users. A similarly vast tangle of pipes does the same kind of job for natural gas. And then there’s the pipeline for investors.Master limited partnerships, which typically process oil and gas, store it and move it through pipelines, are producing some of the best yields anywhere — typically 6% and sometimes more. And the outlook for these ventures is excellent.
MLPs pay out most of their cash flow as dividends, or “distributions.” MLPs are exempt from corporate taxes. But investors are taxed on some of their distributions annually. Taxes on the rest are deferred until units are sold. In the meantime, the structure can provide hefty payouts year after year, and the deferred tax burden disappears at the unit holder’s death — making the MLP an attractive wealth-transfer tool.