Master Limited Partnerships, or MLPs, are often misunderstood by investors. There are several difference between a partnership and a corporation. For example, corporations have shareholders and pay them dividends whereas partnership have unit holders that receive distributions.
The major difference between the two business entities is taxes. While investors have to pay taxes on income they receive from these types of investments, MLPs don’t have to pay federal and corporate taxes (though there are other tax related issues investors should know and understand before purchasing units of MLPs). This often leaves more net income available to unit holders that is paid out in dividends.
MLPs offer investors high dividend yields. The average yield of Master Limited Partnerships is roughly four times that of the yield of the S&P 500.
One such MLP that is offering an attractive dividend is Holly Energy Partners (HEP).
Overview
As a midstream MLP, Holly Energy is responsible for transporting and storing of energy related products. Holly Energy operates its own crude oil and petroleum pipelines and storage terminals in Texas, Nevada, Washington and seven other U.S. states. The partnership also operates refinery facilities in Utah and Kansas. Holly Energy was created in 2004 by HollyFrontier (HFC). The MLP generates revenue by charging customers fees for transporting and storing their petroleum products. Holly Energy has a market cap of almost $3.3 billion, making it smaller than many of its MLP brethren.
Recent Earnings Report
Holly Energy reported 2nd quarter results on August 1st. The partnership earned $0.38 per unit, missing estimates by $0.02. Net income declined 3% to $40.1 million, largely due to higher interest expense. Revenue grew almost 9% to $118.8 million, though this did come in $4.6 million below expectations. Over the last decade, Holly Energy has increased its earnings per share at a rate of 12%.
