My Biggest MLP Ranking Ever - With A Surprising Result

Introduction

Let me start with something that has almost nothing to do with investing.

I cannot own a single company in this article.

Not because I do not want to. Because of where I live. When a European resident buys a U.S. master limited partnership, the partnership has to withhold tax on that person's share of effectively connected income, and the IRS currently sets that rate at 37% for non-corporate foreign partners. There is also a 10% withholding on the transfer itself under Section 1446(f).

So, I essentially have to use 1099-structured ETF wrappers for my midstream exposure, and I get on with my day. And as I don't like ETFs (I create my own diversification), I decided to just forget about buying MLPs. 

It's super annoying. But it forced me to learn something about these companies that most investors never bother to check, and once I noticed it, I could not stop noticing it.

I am going to give you two tickers. The first one trades at $24.17 and pays $1.67 per year. The second trades at $26.24 and pays $1.67 per year.

That's the same distribution. They have the same assets. They also have the same management team. Oh, right, and they have the same pipelines in the same ground.

You know where I am going with this. They are the same company.

I'm talking about Plains All-American Pipeline (PAA) and Plains GP Holdings (PAGP). One is the partnership, while the other is the corporation that holds an interest in the partnership. As it turns out, the market has decided the corporate version is worth 8.6% more, which works out to roughly 55 basis points of annual yield handed over voluntarily by people who would rather not receive a Schedule K-1.

If you think about it, that is the price of a tax form, at least to these investors. Fifty-five basis points a year, forever. 

I find that fascinating. I also find it useful, because it tells you something real about who owns these things and why.

Anyway, that was the appetizer.

Today I am ranking five of the biggest midstream MLPs using TOLL+M, and I want to be upfront with you about how it went.

My favorite midstream name came in fourth. My second favorite came in third. If that doesn't show how unbiased I am when I conduct research, I don't know what does. 

I did not adjust the weights to fix that. I am going to show you the scorecard, and then I am going to argue with it. In other words, you're getting the spoiler upfront before I walk you through the results. 

So, let's go.