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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (31693)8/3/2008 1:45:20 AM
From: Spekulatius  Read Replies (2) of 78742
 
E K S
A few comment regarding MLP's

You stated:

The MLPs throw off good income, but as their projects grow, the master partners (usually the large oil companies and distributors) receive a much larger percentage of the return than the limited partners.

Not correct. the general partner can receive up to 50% of the incremental cash flow once the distribution of the MLP exceeds the maximum split. So the general partner can never take the majority of the profits, at most 50% and even that is possible only once the distribution exceeds the maximum split by far.

if you do not like the fact that MLP's are taxed by IDR's there are 2 ways to avoid that:

1) By into an MLP that just IPO'd. those start up in the lowest split and only if the GP manages to bumb up the distribution/unit significantly he will receive an increasing share of the cash flow

2) Invest into the GP itself and take advantage of the growth dynamics of MLP's. Many choices here: AHD, ETE, EPE, MGG, BGH etc.

MLP's are not for everybody - there is a minimum investment required to make the tax hassle worthwhile. But over time, these MLP's earn 7-8% (and sometimes more) distribution yield, which is mostly return of capital, so not taxed and manage to increase their distributions in the low single digits. So an overall LT return in the 15% range is possible without any stretch of imagination. Those returns i think will beat the S&P500.
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