What is a characteristic of Master Limited Partnerships (MLPs)?

Master Limited Partnerships (MLPs) have specific regulatory requirements that shape their characteristics and operations. One key characteristic of MLPs is that they must derive at least 90% of their revenue from qualifying sources, primarily in the energy sector, including oil and gas exploration, transportation, and storage. This requirement helps define the investment focus of MLPs and makes them appealing to investors looking for exposure to those specific industries while also benefiting from certain tax advantages.

The structure of MLPs allows them to pay out a significant portion of their income to investors in the form of distributions, owing largely to their revenue composition. This necessity to derive a majority of income from defined sectors plays a crucial role in maintaining their status and tax treatment under the Internal Revenue Code, affecting their operational and financial strategies.