MLPs Boom As Low-Tax, High-Dividend Energy Plays

16 1월, 09:46news.investors.com

Master limited partnerships, formerly an obscure business structure, have boomed in recent years as low-tax, high-yield ways to cash in on America's energy revival.

 

 MLPs are largely, but not exclusively, energy-related.

 

 They do not pay corporate taxes as long as they pass profits to investors, much like real estate investment trusts.

 

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 But there are drawbacks.

 

 Some 45 MLPs were formed from 2010 to September 2013, according to PwC. That's near half of the 111 MLPs at the end of last year. The U.S. needs roughly $200 billion invested in natural gas infrastructure to meet growing and shifting energy demands over the next 20 years, according to the Interstate Natural Gas Association of America.

 

 Plains GP Holdings ( PAGP ) raised $2.82 billion in its October IPO, the biggest new issue of 2013. Plains GP owns a big stake in another MLP: Plains All American Pipeline ( PAA ) .

 

 The Kinder Morgan Inc. ( KMI ) corporate structure is more complex. It serves as general partner for several other listed companies, including Kinder Morgan Energy Partners ( KMP ) and El Paso Pipeline Partners ( EPB ).

 

 Kinder Morgan Inc. and El Paso Pipeline late Wednesday reported lower earnings, missing estimates. Kinder Morgan Energy EPS rose 3%, topping views.

 

 Apache Oil was the first MLP, in 1981. Enjoying the liquidity of publicly traded securities along with the tax benefits of limited partnerships, MLPs rapidly expanded beyond energy — including Burger King, Motel 6 and even the Boston Celtics.

 

 Energy ... And Private Equity

 

 Concerned that corporations would become MLPs en masse to avoid taxes, Congress in 1987 restricted them to companies earning at least 90% of their income from specific sources, primarily energy development.

 

 In 2008, Congress expanded MLPs to include alternative fuels such as ethanol and biodiesel. Some would like to see MLPs expanded to renewable energy projects so they don't have to rely on uncertain tax credits.

 

 Today, most MLPs are energy-related. But several private equity firms, including Blackstone ( BX ) and KKR ( KKR ), have used a loophole in recent years to list as MLPs. Icahn Enterprises ( IEP ) invests in a diverse set of holdings from metals and energy to home fashion and rail cars.

 

 With interest rates at historic lows, making borrowing cheaper and lowering the cost of capital investment, coupled with the shale oil and gas boom, MLPs have become more prominent. Certain integrated energy companies spun off assets such as pipelines to MLPs to focus on their primary businesses as well as accruing some of the tax benefits.