What are MLPs?
MLPs are spin-offs from energy firms nd operate gas or oil pipelines. MLPs pay out most of their income to investors and don't pay corporate income taxes on that income. Those who buy individual MLPs will receive a K-1 tax form, which spells out the income, losses, deductions and credits that the business earned and your share of each.
Most MLP ETFs and mutual funds don't issue a K-1, you will receive a 1099 form reporting the income you received from the funds.
The Risks
In theory, MLPs performances should be independent of oil prices because they collect fees on the amount they move, no matter the price. However, in reality, they are in sync.
Higher production levels should mean a good year for pipeline firms.
The Candidates
Here are just some possible candidates:
- Magellan Midstream Partners (MMP)
- Alerian MLP ETF (AMLP)
- Clearbridge Energy Midstream Opportunity (EMO)