3 MLPs Throwing Off Massive 8%-9% Yields

Energy master limited partnerships (MLPs), largely responsible for energy transportation and storage, offer up some of the market's largest payouts.

Oil pipelines and energy storage terminals
(Image credit: Getty Images)

If you've had to fill up your gas tank or heat your home lately (so, most of us), you might have noticed that your wallet is a lot lighter than usual. That's because oil and gas prices have been surging over the past few months amid a perfect storm of supply-demand imbalances and rising geopolitical tensions.

But while these pressures have been miserable for consumers, they have been a boon to energy stocks, including energy master limited partnerships (MLPs).

MLPs, which first began to form in the 1980s, are a type of "pass-through entity." That's because their income isn't taxed at the corporate level, and is instead "passed through" directly to owners and investors via dividend-esque "distributions." This system typically results in much-higher-than-average yields, often in the 7%-9% range.

Better still, because of what they own – most energy MLPs hold midstream infrastructure such as pipelines and storage facilities – depreciation and other deductions tend to greatly exceed taxable income. That means much of an MLP's cash distributions will be tax-deferred. There is one downside: You'll typically have to deal with complicated K-1 tax forms each year. But for many, the income is worth it.

Here, we will look at three MLPs currently yielding between 8% and 9%. Thanks to recent changes to the tax code, the MLP world has been shrinking threw corporate reorganizations. These three partnerships represent some of the top choices among the remaining options.


Data is as of Feb. 23. Distribution yields are calculated by annualizing the most recent distribution and dividing by the unit price.

Contributing Writer, Kiplinger.com