Investing in Master Limited Partnerships | MlpInvestor.com

Canadian Royalty Trusts Lose Tax Advantage – Could Boost Interest in MLPs

MLPInvestor — Mon, 16 Aug 2010 12:38:47 +0000

Canadian Royalty Trusts or “CanRoys” are similar in structure and tax treatment to master limited partnerships in the US. Like MLPs, they typically have high yields and are exempt from paying taxes at the corporate level. Unfortunately for investors, the Canadian government has decided to put an end to the corporate tax exemption in 2011 (in order to capture more tax revenues). This could boost interest in the US MLP space as investors look for the same tax treatment in other existing investments.

MLPs, DCF, and the Coverage Ratio

MLPInvestor — Wed, 04 Aug 2010 10:52:05 +0000

As we saw in our last post, Distributable Cash Flow is the amount of cash an MLP could pay out to investors in a given period. However, a well managed business balances future cash requirements with giving investors a return on investment today. As a result, not all DCF is paid out to unitholders – some is retained to fund expansion or to ensure that the partnership does not have to reduce distributions in the future.

As an investor, this is what we want – a business which generates more cash than required to provide investors a solid ROI. We can measure this with a metric called the “Coverage Ratio”:

In general, we want DCF to be about 1.2 times the amount of the actual cash distribution. In other words, DCF should be about 120% of distributions.

Distributable Cash Flow Explained

MLPInvestor — Tue, 27 Jul 2010 11:46:58 +0000

When evaluating the performance of a business, one of the first things you want to know is how profitable it is. From an accounting standpoint profit is a more complex calculation than simply taking revenue and subtracting operating costs. Items such as depreciation and amortization attempt to capture the loss in value over time of assets the business owns. However, while these items impact profits “on the books”, they don’t represent actual cash leaving the business. For MLPs, this is where Distributable Cash Flow (DCF) comes into play.

Distributable Cash Flow – Cash is King

Since MLPs are yield oriented investments, investors are primarily concerned with how much cash the business is generating. More precisely, we want to understand how much cash is potentially “distributable” to the partnership in a given period. Therefore, we need to make adjustments to net income to reverse any of the accounting items that distort cash flow. The calculation can be seen below.

MLP or PTP? Fun with Semantics…

MLPInvestor — Fri, 16 Jul 2010 10:58:35 +0000

The acronyms ‘MLP’ and ‘PTP’ are frequently used interchangeably, but there is a subtle difference. A Master Limited Partnership (MLP) is technically just a business structure legally recognized in the tax code (it is not necessarily a publicly traded entity). A Publicly Traded Partnership (PTP) is any partnership that is publicly traded like a stock (not necessarily an MLP).

MLP Index Information

MLPInvestor — Tue, 13 Jul 2010 23:32:37 +0000

I often get asked about benchmarks for gauging MLP performance (similar to the S&P 500 for the broader equity market). The de facto standard is the Alerian MLP Index which tracks 50 of the largest master limited partnerships in the energy industry. Performance data is available under the NYSE ticker AMZ and AMZX (tracks combined price and yield). You can view data for the MLP index on Yahoo! Finance by entering ‘^AMZ’ in the ‘get quotes’ box.

Infrastructure MLPs May Benefit in Wake of BP Spill

MLPInvestor — Thu, 01 Jul 2010 12:06:34 +0000

As millions of barrels of oil continue to spill into the Gulf of Mexico, the U.S. is beginning to look at viable alternatives to offshore drilling. This is a good thing for infrastructure MLPs, because the logical choice is to increase the use of natural gas as an energy source. More gas demand means more gas moved through pipelines, which means higher profits for these businesses.

MLP ETFs Gain Traction

MLPInvestor — Wed, 30 Jun 2010 12:52:13 +0000

As investors become increasingly aware of the higher yields offered by MLPs, financial institutions are pushing to offer more in the way of investment options. Exchange Traded Funds (ETFs) are the latest investment vehicle to be offered in this space. As reported by ETFtrends.com, two funds filed with the SEC in June to offer MLP ETFs: ALPS Advisors and Van Eck Global.

Master Limited Parternship 2010 Investor Conference Slides

MLPInvestor — Tue, 29 Jun 2010 12:31:02 +0000

From time to time I like to post links to MLP investor information which I have found useful. One site that seems to have a good deal of current info is the National Association of Publicly Traded Partnerships website. In particular, the investor conference slides that they publish are a good way to stay updated on the latest and greatest in the MLP space. I have included a link to the 2010 investor conference slides below.

Master Limited Parternship 2010 Investor Conference Slides

Master Limited Partnerships Remain Solid Investments

MLPInvestor — Sun, 27 Jun 2010 14:30:30 +0000

Everyone knows that the last several years have been rough for Wall Street. The stock market weathered one of the worst recessions in U.S. history, leaving many investors discouraged and confused. We witnessed the cataclysmic failure of longstanding financial institutions and the subsequent bailout of the banking system by the federal government. What a nightmare.

MLP Investments Emerge as Winners

Despite all of the turmoil, master limited partnerships have remained solid long term investments. While MLP indices have had their fair share of volatility, they have performed well thanks to a favorable tax structure
and outstanding yields. In fact, the Alerian MLP Index sports a 10 year total annualized return of around 18% vs. a depressing -0.7% for the S&P 500! Not too shabby given the recent economic situation.

The Future of Energy MLPs

As far as the future goes, one thing seems almost certain: the U.S. demand
for energy should continue to grow over time. I expect energy MLPs will continue to prosper as this trend continues.

MLP 101: An Excellent Master Limited Partnership Primer

MLPInvestor — Wed, 18 Nov 2009 12:45:04 +0000

The National Association of Publicly Traded Partnerships has posted an excellent presentation which covers the basics of MLPs. I encourage everyone to read this document, as it contains updated, important information related to investing in master limited partnerships. You’ll find it an easy read and a fairly comprehensive piece of work (including good examples regarding taxes, etc.). As always, consult your tax advisor before you invest in MLPs to ensure you are getting the most out of your investments.