It's Friday noon and the stock market took a tumble on consumer sentiment reports, but I'm in a pretty good mood. I just got paid dividends from some of my investments in the master limited partnerships! What a deal! The payouts on those 4 are as follows:
Calumet Specialty Products CLMT--12.80%
Encore Energy Partners ENP--12.62%
EV Energy Partners EVEP--15.04%
Legacy Reserves LGCY--13.15%
What fantastic returns! When you consider the payouts and the tax advantages of investing in master limited partnerships, I think it will boost my returns significantly over the next few years. Recently,I also bought and sold Regency Energy Partners (RGNC) for a quick 24% gain. So I'm feeling pretty good about investing in limited partnerships.
Tax Advantages:
In an MLP, instead of paying a corporate income tax, the tax liability of the entity is passed on to its unitholders. Once a year, each investor receives a K-1 statement (similar to a 1099-DIV form) detailing his or her share of the partnership's net income, which is then taxed at the investor's individual tax rate.
One important distinction must be made here: While the MLP's income is passed through to its investors for tax purposes, the actual cash distributions made to unitholders have little to do with the firm's income. Instead, cash distributions are based on the MLP's distributable cash flow (DCF), similar to free cash flow (FCF). Unlike dividends, these distributions are not taxed when they are received; instead, they are considered reductions in the investment's cost basis and create a tax liability that is deferred until the MLP is sold.
Fortunately for investors, MLPs generally have much higher distributable cash flow than they have taxable income. This is a result of significant depreciation and other tax deductions, and is especially true of natural gas and oil pipeline and storage companies, which are the most common businesses to choose an MLP structure. Investors then receive higher cash payments than the amount upon which they are taxed, creating an efficient means of tax deferral. According to a report by Wachovia Securities, titled "Master Limited Partnerships: A Primer" (2003), the taxable income passed on to investors often is only 10-20% of the cash distribution, while the other 80-90% is deemed a return of capital and subtracted from the original cost basis of the initial investment.
Read More About MLP's at:
http://www.investopedia.com/articles/basics/07/ml_partnerships.asp
Calumet Specialty Products CLMT--12.80%
Encore Energy Partners ENP--12.62%
EV Energy Partners EVEP--15.04%
Legacy Reserves LGCY--13.15%
What fantastic returns! When you consider the payouts and the tax advantages of investing in master limited partnerships, I think it will boost my returns significantly over the next few years. Recently,I also bought and sold Regency Energy Partners (RGNC) for a quick 24% gain. So I'm feeling pretty good about investing in limited partnerships.
Tax Advantages:
In an MLP, instead of paying a corporate income tax, the tax liability of the entity is passed on to its unitholders. Once a year, each investor receives a K-1 statement (similar to a 1099-DIV form) detailing his or her share of the partnership's net income, which is then taxed at the investor's individual tax rate.
One important distinction must be made here: While the MLP's income is passed through to its investors for tax purposes, the actual cash distributions made to unitholders have little to do with the firm's income. Instead, cash distributions are based on the MLP's distributable cash flow (DCF), similar to free cash flow (FCF). Unlike dividends, these distributions are not taxed when they are received; instead, they are considered reductions in the investment's cost basis and create a tax liability that is deferred until the MLP is sold.
Fortunately for investors, MLPs generally have much higher distributable cash flow than they have taxable income. This is a result of significant depreciation and other tax deductions, and is especially true of natural gas and oil pipeline and storage companies, which are the most common businesses to choose an MLP structure. Investors then receive higher cash payments than the amount upon which they are taxed, creating an efficient means of tax deferral. According to a report by Wachovia Securities, titled "Master Limited Partnerships: A Primer" (2003), the taxable income passed on to investors often is only 10-20% of the cash distribution, while the other 80-90% is deemed a return of capital and subtracted from the original cost basis of the initial investment.
Read More About MLP's at:
http://www.investopedia.com/articles/basics/07/ml_partnerships.asp
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