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Passive Income Investments | Master Limited Partnerships (MLPs)

Master Limited Partnerships (MLPs) can be a useful tool for investors looking to boost their overall passive income. In this article we take a look at these often-underappreciated stocks, and I give you my top picks for 2023

David Garner
David Garner
Published On: March 8th, 2023

Passive Income Investments | Master Limited Partnerships (MLPs) 

Hello there, fellow investors! Today we’re going to dive into the exciting world of master limited partnerships, or MLPs for short.  

MLPs are an often-overlooked investment option that can offer a unique combination of income and growth potential for the savvy investor. So, what exactly are MLPs and what do you need to know about them? Let’s take a closer look… 

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What is a Master Limited Partnership  

At their core, MLPs are publicly traded partnerships that combine the tax benefits of a limited partnership with the liquidity of a publicly traded stock.  

MLPs are public partnerships that combine the numerous tax benefits of a limited partnership with the liquidity of a stock that is publicly traded.  

What is a Master Limited Partnership  

To qualify as an MLP, a firm must collect at least 90% of its annual revenue from qualified sources. These include natural resources, commodities, or real estate.  

With that in mind, you’ll find many MLPs are involved in the transportation, storage, and processing of oil and gas, but there are other MLPs that specialize in other sectors such as renewable energy or infrastructure. 

Benefits of MLP Stocks? 

One of the most important advantages of owning MLPs is the passive income they may deliver to investors. 

Unlike many typical equities, MLPs must transfer the bulk of their earnings to shareholders on a regular basis. 

Benefits of MLP Stocks? 

This frequently takes the form of quarterly or monthly dividend payments, which may provide a consistent source of income for people wishing to augment their investment portfolio with some consistent cash flow. 

MLPs can provide tax benefits to investors in addition to more frequent dividend payouts. 

MLPs are not subject to corporate income tax since they are constituted as partnerships; rather, owners pay taxes on the income they earn, which can result in greater total returns for investors. 

Disadvantages of Master Limited Partnership Stocks 

While adding MLP stocks to you portfolio might be a great way to improve your passive income, it’s also vital to understand that there are certain risks specific to these types of stocks. 

For one thing, the tax implications of owning MLPs can be actually be quite complicated based on your own personal tax circumstances, and you may need to consult with a tax professional to ensure that any income your receive is properly categorized, and your taxes are filed correctly. 

Disadvantages of Master Limited Partnership Stocks 

Additionally, due to the nature of their underlying business operations, MLPs are usually highly indebted, which raises the risk of a market disruption or economic collapse. 

Finally, you should take into account that many of these companies are project based, especially those in the natural resources sector, and so issues with the underlying project such as operational issues, or the market price of whatever they are producing, or even significant rises in the production and/or transportation of that commodity might negatively impact the stock performance. 

How Have MLP Stocks Performed? 

So, how have MLPs performed for investors over the long term?  

When compared to the S&P 500 index, MLPs have historically provided higher dividend yields and greater total returns. However, it’s important to remember that past performance is not a guarantee of future results, and investors should carefully consider their investment goals and risk tolerance before diving into the world of MLPs. 

Right now, there are some MLP stocks that are kicking out annual yields, but as with any stock, prices can be volatile! 

Some MLP Stocks to Consider for Passive Income 

If you’re interested in exploring MLPs further, here are five examples of MLP stocks that you might consider.  

This selection is based on a number of criteria, including expected dividend yield, and expected change in share price according to leading sources around the web as of today. 

Icahn Enterprises LP (IEP): Icahn Enterprises L.P. is involved in the investing, energy, automobile, food packaging, metals, real estate, and home fashion industries in the United States and internationally. Carl Icahn holds 100% of Icahn Enterprises GP, the general partner of Icahn Enterprises and Icahn Enterprises Holdings, as well as about 87% of the outstanding shares of Icahn Enterprises. 

Plains All American Pipeline LP (PAA): Plains All American Pipeline is a supplier of midstream energy infrastructure. The corporation has a large network of pipeline transportation, terminals, storage, and gathering assets in major crude oil and natural gas liquids producing basins in the United States and Canada. 

It carries more than 7 million barrels of crude oil and NGL per day on average over 18,370 miles of operational pipelines and collection systems. Plains All American, headquartered in Houston, Texas, generates around $40 billion in yearly revenue.  

Alliance Resource Partners LP (ARLP): Alliance Resource Partners is the eastern United States’ second-largest coal producer. In addition to its principal business of producing and marketing coal to major domestic and international utility consumers, the firm holds mineral and royalty interests in prime oil and gas basins such as the Permian, Anadarko, and Williston Basins. 

Ultimately, the corporation offers terminal services, such as coal transportation and loading, as well as technological goods and services. The corporation is headquartered in Tulsa, Oklahoma, and has annual revenues of $1.6 billion. 

Brookfield Infrastructure Partners LP (BIP): Brookfield Infrastructure Partners L.P. is one of the world’s major owners and operators of infrastructure networks, with interests in energy, water, freight, passengers, and data. Brookfield Infrastructure Partners is one of Brookfield Asset Management’s four publicly traded listed partnerships (BAM). 

The alliance has a strong track record of consistent distribution expansion. 

Magellan Midstream Partners LP (MMP): Magellan has the longest refined product pipeline system, which connects to approximately half of the entire refining capacity in the United States. 

Transportation accounts for more than 60% of the company’s overall operating profits. MMP operates on a fee basis, with commodity prices accounting for just 10% of its operational profits.


Finally, MLPs can be an appealing investment choice for investors seeking to balance their portfolio’s income and growth possibilities.  

But, like with any investment, it is critical to conduct thorough research and carefully weigh the risks and benefits before making any investing decisions. Congratulations on your investment! 


Investopedia – Master Limited Partnerships 

Sure Dividend – Best Master Limited Partnerships 

Baird WM – The Taxation of Master Limited Partnerships FAQ