| | | Re: The Difference between NGL-C & NGL-B
(Tax Efficient distributions Qualified vs ROC dividends)
I have been researching on both of these and in a taxable account; the dividends paid by NGL-B are "Qualified" and those for NGL-C are not and could be ROC.
The nice part is all "Qualified" dividend income is treated as a long term capital gains
Here is the breakdown based on the 2025 tax year (which you file in early 2026):
Qualified Dividend Tax Rate (Single Filer)
| Taxable Income Threshold | Long-Term Capital Gains & Qualified Dividend Rate | | Up to $48,350 | 0% | | $48,351 to $533,400 | 15% | | Over $533,400 | 20% |
Therefore this is a great way to generate income that is tax efficient.
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In case of NGL-C your dividends are classified as ROC so those dividends accumulate and reduce your cost basis. No tax is paid until you Sell shares and if sold after holding 1 year & one day, then those gains are treated as long term capital gains and taxed according to the schedule above. You can keep your gains inside the portfolio and only sell if/when you want to manage the tax event.
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The yield is a fixed float yield for Both
Cumulative distributions of 9.00% per annum ($2.25 per annum or $0.5625 per quarter) will be paid quarterly on 1/15, 4/15, 7/15 & 10/15 to holders of record on the record date that will be 1/1, 4/1, 7/1 & 10/1 respectively (NOTE: the ex-dividend date is one business day prior to the record date). On and after 7/1/2022, distributions on the units will accumulate at a redemption price in cash of $25.00 per unit equal to the applicable three-month LIBOR plus a spread of 721.3 basis points. The current yield on your preferred unit at a price of $23.64 is 11.45%.
This calculation is based on the floating rate dividend formula, using the current successor rate for the discontinued 3-month LIBOR.
Floating Rate Dividend Calculation
Since the date is after July 1, 2022, the unit is now in its floating rate period.
1. Determine the Annual Distribution Rate
The annual distribution rate is calculated as the benchmark rate plus the fixed spread.
- Benchmark Rate: The original benchmark, the 3-month USD LIBOR, has ceased publication. Per regulatory guidelines, a replacement rate, typically the Secured Overnight Financing Rate (SOFR) or its corresponding index, is used, along with a spread adjustment to account for the difference between the two rates. However, for a quick estimate, we will use a recent 3-month financial rate, as the LIBOR rate for November 2025 was unavailable. We'll use the 3-Month Commercial Paper Financial rate for November 20, 2025, which was 3.83% (a reasonable proxy for current short-term funding costs).
- Spread: $721.3$ basis points is equal to $7.213\%$.
- Annual Distribution Rate:
$$\text{Rate} = \text{Benchmark Rate} + \text{Spread}$$
$$\text{Rate} = 3.83\% + 7.213\% = 11.043\%$$
2. Calculate the Annual Distribution Amount
The annual distribution amount is calculated based on the fixed redemption price (par value) of $25.00.
- Annual Distribution Amount (DPS):
$$\text{DPS} = \text{Par Value} \times \text{Annual Distribution Rate}$$
$$\text{DPS} = \$25.00 \times 11.043\% = \$2.76075$$
3. Calculate the Current Yield
The current yield is the annual distribution amount divided by the current market price.
- Current Yield:
$$\text{Current Yield} = \frac{\text{Annual Distribution Amount}}{\text{Current Price}}$$
$$\text{Current Yield} = \frac{\$2.76075}{\$23.64} \approx 0.11678 \text{ or } 11.68\%$$
| Component | Value | | Benchmark Rate (3-month CP) | $3.83\%$ | | Spread (721.3 BPs) | $7.213\%$ | | Annual Distribution Rate | $11.043\%$ | | Par Value | $\$25.00$ | | Annual Distribution Amount | $\$2.76075$ | | Current Price | $\$23.64$ | | Current Yield | 11.68% |
?? Note on Benchmark Rate:
The preferred units' floating rate officially transitioned away from LIBOR to a contractually defined successor rate, which usually includes a fixed Tenor Spread Adjustment as mandated by the LIBOR Act. This successor rate is typically based on Term SOFR.
- For the 3-month tenor, the official Tenor Spread Adjustment defined by regulators is 0.26161%.
- The actual distribution rate is set quarterly, and the issuer will use the specific successor rate plus the spread. The final calculated yield may vary slightly based on the specific Term SOFR rate used by the issuer for the current distribution period.
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With Markets at/near all time highs, this NGL-B w/ qualified dividends yielding 11.45% may/could be an excellent income investment in a taxable account w/ only 0% or 15% max tax rate (depends on your total long term capital gains for the year).
Reviewing my portfolio, I have many REITs in the taxable account that pay a nice dividend but are not tax efficient (not "qualified") and would be better to hold those in the ROTH/IRA. Also others are a hybrid of ROC (like KMI & WMB) & qualified. Return Of Capital reduces cost basis so still easy to manage those gains to be tax efficient. |
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