MLP’s In A Dividend Portfolio? What Is Their Future?

By: ispeculatornew
Date posted: 11.27.2013 (3:00 am) | Write a Comment  (3 Comments)

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I’ve been working on a high dividend yield portfolio for some time now (it is coming, don’t lose hope!) and one of the recurring themes from the hundreds of investors who have been working on their own solution is the presence of MLP’s (master limited partnerships) in their portfolio. I did send out an email to newsletter subscribers with more info about MLP’s which you might want to check out:
Basically, it is a trending form of company that allows for small/zero corporate taxes to be charged as long as earnings are passed through to investors. The same type of capital structure named “income trusts” started gaining traction a few years ago in Canada. Over thew years, more and more companies started moving to that structure which was great for investors of course.

What Happened? BCE inc.

When BCE inc, one of the largest telecom corporations in Canada announced it would be converting to become an income trust, the Canadian Government felt compelled to act. It could not stand still while all corporations moved to a non-taxable corporate structure so it ended up basically eliminating the fiscal benefits of income trusts (not surprisingly, there are now very few income trusts left in Canada).

Will the Same Happen In The US?

It’s certainly possible but I wouldn’t call it likely. Corporate tax “avoidance” is not exactly a big problem when you look at big corporations such as Google, Facebook and others that barely pay any taxes at all. Assuming that it’s not, what are the consequences for investors such as you and I?

MLP’s Bring Tax Complexity

There are many differences between investing in an MLP and a typical dividend stock. Not only do taxes depend on the investor’s income and what type of account holds the assets but also where that investor is. Depending on the state where you live and where the MLP is located, the taxes will be treated differently. I’m not a fan of complex taxes. Why? Because as a small investor that does not have the time to study all of these rules, I can’t optimize those investments correctly.  That is the biggest reason why I personally try to invest in MLP’s through funds such as ETF’s. Yes, it can still fit into a dividend/passive income portfolio but is it pure dividend investing? No. So if MLP’s continue to grow in size and importance, I will end up having less pure dividend stocks.

Do you agree? Or Do You Hold MLP’s Directly?

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3 Comments

  1. Comment by Bernie — November 27, 2013 @ 11:25 am

    MLPs, if held directly, would only benefit U.S. citizens. Non-U.S. residents are taxed 35% on MLP dividends.

  2. Comment by jv — November 29, 2013 @ 1:08 pm

    No I dont hold MLP’s due to the tax imbroglio. I Had
    Reits greedy me, and they then had me.

  3. Comment by S. B. — December 2, 2013 @ 10:00 pm

    I personally choose not to hold MLPs directly anymore. Everyone tells you how easy a K-1 is to deal with at tax time, but the few times that I received them, I did not find that to be the case! Never again for me.

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