A Steady Flow from Oil

摘要

Crude oil, natural gas, and gasoline prices have soared in recent months, yet returns for major oil company stocks have been flat. Is there another way to get in on the action in energy? Energy-sector master limited partnerships (MLPs) and income for royalty) trusts are just that. They've shown high returns, tax advantages, and a knack for consistently increasing distributions. Current yields run about 75% for MLPs and 11% for trusts vs. 2.1% for the Standard & Poor's 500 Energy index. Over the past five years, MLPs posted a total return of 27.2%, while trusts returned 25%, compared with 21.3% for the energy index. While both entities are required to pay out essentially all of their cash flow in distributions, neither pays income taxes, which eliminates the issue of double taxation of dividends. Here's a look at how these vehicles operate, and some pros and cons of owning them.