There are two types of partners in a Master Limited Partnership structure, a general partner and limited partners.
The general partner manages the master limited partnership and typically holds a 2% economic interest in it. The general partner also receives a percentage of the profits off the top, before the limited partners get their cut. These so called Incentive Distribution Rights allow the general partners to take a higher proportion of incremental amounts over a certain threshold levels. This provides the general partner with a strong motivation to raise distributions to unitholders, which is appealing to them.
The last tier is typically 50/50, which means that general partners receive 50% of any incremental cash flows above a certain threshold level. This could however increase the cost of equity for the MLP and dilute ownership claim of limited partners.
Limited partners are not involved in the day-to-day management of the MLP, and have limited liability. Once the MLPs reach the highest IRD threshold the distribution growth for Limited Partners slows down, while it increases for general partners.
Some MLP's such as Kinder Morgan (KMP), energy Transfer Partners (ETP) and Oneok Partners (OKS) have already reached the top 50% IDR level. Other MLPs such as Entrerprise Products Partners (EPD) have capped their incentive distribution rights threshold to a maximum of 25%. Check my analysis of Kinder Morgan Partners (KMP).
One way to capture the higher distribution growth potential is to purchase the General Partner Units traded on US exchanges. Not a lot of GPs are traded however. One general partner that has reached the 50% incentive distribution rights threshold is Energy Transfer Equity (ETE), which is the GP for Energy Transfer Partners (ETP).
Another major General Partner, whose units could be bought by ordinary investors is Enterprise GP Holdings (EPE). It owns the general partner and limited partner interests in Enterprise Products Partners L.P. (EPE), TEPPCO Partners, L.P (TPP) and Energy Transfer Equity, L.P (ETE). Check my analysis of Teppco Partners L.P..
Full Disclosure: Long Kinder Morgan Partners
Relevant Articles:
- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
- Using DRIPs for faster compounding of dividends
- Best High Yield Dividend Stocks for 2009
- Kinder Morgan Energy Partners (KMP) Dividend Analysis
- TEPPCO Partners (TPP) Dividend Analysis
Popular Posts
-
As a Dividend Growth Investor, I focus on quality companies that have managed to raise dividends for a certain number of years. Before I res...
-
As an investor, you can control what you invest in, how much you invest in, and what your costs are. A very appealing concept along those l...
-
I review the list of dividend increases every week, as part of my monitoring process. I usually focus my attention on companies that have ma...
-
The past week was very slow when it comes to dividend increases. The only notable increase was Verizon (VZ), with its 2% raise in the quarte...
-
My monitoring process includes reviewing dividend increases every week. This is a helpful exercise in reviewing existing investments, but al...
-
Warren Buffett turns 92 today! The super-investor from Omaha has achieved quite the investment record at Buffett Partnership and Berkshire H...
-
In March 2000, Cisco Systems (CSCO) reached an all time high of $82/share. It became the largest company in the world, with a market capital...
-
I review the list of dividend increases each week, as part of my monitoring process. This exercise allows me to monitor existing holdings, b...
-
One of my favorite personal finance blogs is written by Jonathan Ping over at My Money Blog . Jonathan writes on a broad topic of finance it...
-
The popular REIT Store Capital (STOR) will be acquired by a Private Equity group. As part of the deal, shareholders would receive $32.25/sha...
