Anyone else venturing into MLPs?
 

Over the last couple years I have been nibbling at them and the three I had bought have done so well I bought into another today. Their cash distributions are why I buy them as I am seeking passive income.

The hassle happens at tax return time. Oh well...

What is an MLP?

Just googled it and nothing useful popped up.

Thanks

Investing in Master Limited Partnerships (MLPs)
What are MLPs?
Master Limited Partnerships (MLPs) are publicly traded limited partnerships that primarily engage in natural resource-related activities, such as the transportation, processing, and storage of oil, gas, and other commodities. MLPs combine the tax benefits of a limited partnership with the liquidity of publicly traded stock.
Benefits of MLP investment
High Yields: MLPs are known for offering attractive yields, often higher than typical dividend-paying stocks or bonds, according to Charles Schwab.
Tax Advantages: MLPs are pass-through entities, meaning profits are taxed only at the unitholder level, avoiding corporate-level taxation. A significant portion of MLP distributions is often considered a return of capital, deferring tax liability until the units are sold.
Exposure to Energy Infrastructure: MLPs provide investment exposure to essential energy infrastructure, which can be less sensitive to short-term fluctuations in energy prices.
Diversification: MLPs have historically shown low correlation with other asset classes like stocks and bonds, making them potential portfolio diversifiers.
Risks of MLP investment
Tax Complexity: While tax-advantaged, MLPs require investors to handle K-1 tax forms, which can be more complex than standard 1099 forms. Holding MLPs in tax-advantaged accounts like IRAs can trigger unrelated business taxable income (UBTI).
Interest Rate Sensitivity: Many MLPs carry significant debt, making them sensitive to rising interest rates, which can increase borrowing costs.
Concentration Risk: MLPs are primarily concentrated in the energy sector, exposing investors to sector-specific risks like changes in commodity prices and regulatory policies.
Volatility: MLPs can be more volatile than traditional stocks and bonds.
Legislative Risk: Changes in tax laws or government policies could negatively impact MLPs' tax advantages.

gave up on them due to tax reporting, and the passive income based upon the price of the commodity and the reinvestment rate of the GP, general partner. . . Some years were great and other years were zilch due to the price and reinvestment plans . . .

currently following an account growth strategy using an undervalued mean reversion strategy and its going very well. . but all stocks have gone up since April so its hard to tell if I am a genius or an idiot. .

When I read that K-1 forms were involved, I said no thank you.

I have a share in several limited partnerships and have for many years, but no publicly traded ones.

The advantage is high returns.

The drawbacks are:

1. K1's. Its not the K1's per se, although they make your return thick. it is that they never get you your K1's on time. You are lucky to get final ones by October. So you have to file an extension every single year. This is probably not true of public ones

2. State taxes. You are supposed to file state tax returns in every state in which they do business, which is many. I don't, and just take the chance that the various states won't come after me for the small sums that I owe them....or even know that I exist. So far none have. But its a stressor. Once again probably not a requirement for publicly traded limited partnerships.

Sorry if my post is more related to private equity limited partnerships and only tangentially related to public MLPs

The K-1s are the hassle. Last year I received only one in snail mail. Phoning one MLP's office I was directed to a website where I could obtain K-1s from the public MLPs I held.

Brings back lousy memories. Years ago purchased 3 from someone who was also a life insurance salesman. Should have stopped right there.

They were for purchase of land in one case and real estate with buildings in the other 2.

One real estate went belly up within a year. The other lasted for about 10 years and losst money.

The third was for land in the vicinity of Chicago where the developer thought building would head in their direction making land more valuable. This one we did sort of make money but took 20 years to happen with no dividends until the fund finished.

The tax reporting caused me to start using a CPA for first time.

BTW when I started asking questions of my so call friend the salesman, he stopped returning my calls.

All I can say is never again.

Your accountant will hate you and charge you accordingly. Be prepared for amended K-1 and amended returns.

He's already handled them a couple years for me. Frankly, I was initially surprised how much detail is involved for each and every MLP K-1. He handles an LLC and a C corporation for me, too and they are year long jobs for which I pay him well.

I worked for an MLP and had quite a bit of stock as a result. It paid well and grew fairly well. Several years after I retired the company sold and all my shares converted to a reqular stock. All that deferred income came home to roost and I had a giant tax bill. This year it hit IRMAA hard, so I'm still paying. It isn't a bad investment but always understand the exit cost. The government always gets its share, at some point. And K1s are a pain.
Note that you can buy a basket of MLPs in an ETF and maybe a CEF. They pay a decent dividend and are treated, tax-wise, like a regular stock, no K1.

In December of 2021 I first put my toe in MLP waters and bought some ET. It has more than doubled in price since then and pays over 7.5% on it current valuation. Not too bad IMHO. Just dumb luck, I know, but it did get my attention. At this point in my life I am looking for passive income without undue risk so am investigating various options. MLPs are a little exotic, but so far so good.

Smart move. I did the same thing.

Amlp
 

I transitioned to this Alerian EFT (AMLP) to avoid the hassle of the MLP filing fees with fidelity since I held the MLPs in IRAs. Pays quarterly about 8%. No K1s.

they're a great deal, closest thing you can get to free money. just be sure to hold them in your taxable account, not your IRA. K-1's are no big deal, my accountant handles them with ease and charges very little. mine always get to me in time to file without an extension. epd and et are probably the best two IMO.