MLP — Master Limited Partnership
MB Capital Strategies Glossary — Updated June 2026
A Master Limited Partnership (MLP) is a publicly traded US business structure used primarily in energy infrastructure — natural gas pipelines, crude oil transport, storage terminals, and processing facilities. MLPs pay 6-10% distribution yields and avoid corporate income tax entirely, making them one of the highest-yielding legal structures in US equities.
How MLPs Work
MLPs are partnerships, not corporations. They issue units (not shares) and pay distributions (not dividends). The partnership structure means all earnings flow directly to unitholders — the MLP itself pays no federal income tax. This tax pass-through is why yields are so high: roughly 70-90% of typical MLP distributions are classified as return of capital, not ordinary income.
Tax Caution: K-1 Forms. MLP unitholders receive K-1 tax forms instead of 1099-DIVs. K-1s are more complex, arrive later (March-April), and can create state tax filing requirements in every state the MLP operates. Non-US investors face 37% withholding on MLP distributions. Check with a tax advisor before buying MLPs in retirement accounts (UBTI issues).
MLP vs. C-Corp Pipeline Companies
| Feature | MLP (e.g. MPLX, ET) | C-Corp (e.g. Enbridge, TC Energy) |
|---|
| Tax structure | Pass-through, no corporate tax | Corporate tax applies |
| Payout form | Distribution (partially return of capital) | Dividend (ordinary or qualified) |
| Tax form | K-1 (complex) | 1099-DIV (simple) |
| Typical yield 2026 | 7-10% | 5-8% |
| Non-US investors | 37% withholding (unfavorable) | 15-25% withholding (standard treaty) |
| RRSP/IRA eligible | UBTI risk in IRAs | Standard eligible |
Major MLPs 2026
- Enterprise Products Partners (EPD): largest midstream MLP, ~7% yield, 25+ years of distribution growth
- MPLX: Marathon Petroleum's MLP, ~9% yield, gathering & processing
- Energy Transfer (ET): ~8% yield, largest US natural gas pipeline network
- Kinder Morgan (KMI): now a C-Corp (converted 2014), but pipeline business model similar to MLPs
For Non-US Investors: The K-1 complexity and 37% withholding make traditional MLPs less attractive outside the US. Canadian pipeline companies (Enbridge, TC Energy, Pembina) with 6-8% dividend yields offer similar pipeline infrastructure exposure with simpler 15% withholding (treaty rate).
Related Terms
Not investment advice. Tax laws change — verify K-1 and UBTI treatment with your tax advisor. MLP yields and distributions are not guaranteed. Sources: IRS Publication 550, EPD/MPLX/ET investor relations 2026.