Trump's Tax Cut Proposal Shines Light on MLPs
NEW YORK/HOUSTON, April 26 (Reuters) - The Trump administration's proposal to slash tax rates on so-called pass-through businesses would deliver a windfall to investors in master limited partnerships and could offer a much-needed lift to this niche segment of the energy market.
The tax plan outline released on Wednesday by U.S. President Donald Trump would sharply slash business taxes and discount the rate on overseas corporate profits brought back into the United States.
The proposed changes include a cut to the top tax rate on pass-through businesses to 15 percent from the current rate of up to 36.9 percent. Pass-throughs get that name because taxes are not paid by the business itself but pass through to their owners' individual taxes, at that rate.
The change would largely benefit owners of private businesses, but U.S. stock market investors holding shares of master limited partnerships, or MLPs, would receive the same treatment. MLPs build the pipelines and storage tanks and are a common corporate structure in the oil and gas infrastructure sector.
"If the average rate (for MLP investors) is in the 30s, reducing it to 15 percent would be tremendously attractive," Robert Willens, president of tax and accounting advisory firm Robert Willens LLC, said on Wednesday.
He said if the cuts come through they would make MLPs "the most attractive investment from a tax point of view."
Mike Bresson, a tax partner with the law firm Baker Botts in Houston said Trump's proposed change would enhance an already-superior tax structure enjoyed by MLPs.
"They're talking about giving MLPs the same 15 percent tax rate that corporations get, so that would actually expand the benefits of MLPs over corporations," Bresson said.
"The devil is in the details and we haven’t seen them."
MLPs have broadly underperformed the wider stock market over the past several years, largely due to the weakness in oil prices. The energy sector was pummeled as crude prices tumbled from above $100 per barrel in mid 2014 to below $30 early last year. They only recently stabilized at around $50 for U.S. oil .
"There has been a gradual improvement in MLPs now that energy prices have stabilized. It's still a decent place to invest even without the tax cut," said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois.
"There should be an almost immediate bounce (in price) once the proposal is solid. It should create more demand for MLP stock in general. But beyond an immediate bounce, it all goes back to how their businesses are doing.”
Even with their above-average dividend yields, MLPs have lagged the S&P 500's total return in the last year by around 240 basis points.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Weatherford CEO's Rebound Plan Relies On Getting Smaller
- Iran Says Oil Market Is Too Tight For US Zero Exports Target
- China's Squeezed 'Teapots' Eye Petchem Path To Riches
- Baker Hughes: US Drillers Add Oil Rigs For Second Week In Three
- Venezuela Hands China More Oil Presence, But No Mention Of New Funds
- Gunvor CEO Sees Russian Refining Capacity Taking Hit from Drone Strikes
- Sinopec Engineering Posts Higher Annual Petrochemicals Revenue
- Subsea7 Secures Contract to Service Woodside's Trion
- These Factors Helped Brent Oil Price Break Above $85
- Imperial Pipeline in Winnipeg Goes Offline for Three Months
- Adnoc Inks Supply Deal for Ruwais LNG Project with Germany's SEFE
- Gaz System to Acquire Gas Storage Poland
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Rystad Looks at the Buzz Around White Hydrogen
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension