Energy Commentary

Despite the dramatic changes that have occurred in the universe of publicly trade partnerships since the 1980s, the basic appeal of this security class to investors has remained the same: above-average yields and significant tax advantages. These qualities, coupled with the current market environment and investor psychology, explain the increasing popularity of publicly traded partnerships.

Readers often ask how incentive distribution rights are calculated and how this fee schedule affects an MLP’s ability to grow its distribution over time. Here’s a lucid explanation of this complex topic.

A recent private letter ruling from the Internal Revenue Service suggests that some petrochemical assets are suitable for MLPs. The market’s reaction to this news appears slightly misguided.

Although income-seeking investors often gravitate toward the highest-yielding master limited partnerships, the potential for distribution growth is a much more important driver of total returns.