In the United States, a master limited partnership (MLP) is a publicly traded limited partnership.
Wells Fargo provides the definition of following key terms to help investors better understand MLPs.
8 Great Terms To Know
Distributable Cash Flow (DCF): "DCF is the cash flow available to be paid to common unit holders after payments to the general partner."
Distribution (Dividend) Discount Model (DDM): "DDM is an equity valuation tool used to estimate the present value of a stock based on the expected distributions (pr dividends/future cash flow) received from the company."
Earnings Per Unit (EPU): "An MLP's EPU is synonymously with a C corp.'s earnings per share (EPS). EPU is calculated by dividing net income allocated to the limited partners divided by the weighted average units outstanding at the end of the period."
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Terms Of The Trade: Master Limited Partnerships
General Partner (GP): The GP (1) manages the day-to-day operations of the partnership, (2) generally has a 2 percent ownership stake in the partnership, and (3) is eligible to receive an incentive distribution (through the ownership of the MLPs' incentive distribution rights)."
Incentive Distribution Rights (IDRs): "IDRs allow the holder (typically the general partner) to receive an increasing percentage of quarterly distributions after the MQD and target distribution thresholds have been achieved. In most partnerships, IDRs can reach a tier wherein the GP is receiving 50 percent of every incremental dollar paid to the LP unitholders. This is known as the 50/50 or 'highsplits' tier."
Limited Partner (LP): "The LP (1) provides capital, (2) has no role in the MLPs' operations or management, and (3) receives cash distributions.
Liquid Petroleum Gases (LPGs): "LPGs are created (as a byproduct) during the refining of crude oil or from natural gas production. LPGs are typically a mixed form of propane and butane."
Natural Gas Liquids (NGLs): "NGLs are extracted from the raw natural gas stream into a liquid mix (consisting of ethane, propane, butane, iso-butane, and natural gasoline). The NGLs are then typically transported via pipelines to fractionation facilities."
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