Master limited partnerships (MLPs) have long been favorites among income investors thanks to their pass-through structure and typically generous cash distributions. Many also own energy infrastructure assets such as pipelines, storage terminals, and processing facilities, businesses that have historically held up relatively well during inflationary environments because their revenues are often backed by long-term contracts or regulated fee structures.
The biggest drawback to owning individual MLPs is the Schedule K-1. Unlike a standard Form 1099, the K-1 can be considerably more complicated and often arrives late in tax season. To avoid that hassle, many investors simply buy an ETF instead. The largest by far is the Alerian MLP ETF (AMLP), which manages more than $12 billion in assets.
Unfortunately, AMLP comes with its own drawbacks. Despite offering a healthy 7.79% trailing 12-month distribution yield, the fund has historically exhibited significant tracking error versus its underlying index. Part of that stems from its relatively high 0.84% expense ratio, but another contributor is its 0.17% income tax expense because AMLP is structured as a C corporation. AMLP also records deferred tax liabilities that can further widen the performance gap between the ETF and its benchmark.
For that reason, I generally prefer midstream ETFs that keep their MLP allocation below 25%. Doing so allows them to qualify as a regulated investment company (RIC). The trade-off is that yields are often lower because part of the portfolio consists of traditional pipeline corporations rather than pure MLPs.
One overlooked exception is the NEOS MLP & Energy Infrastructure High Income ETF (MLPI). The fund currently sports a 14.76% distribution rate, substantially higher than AMLP, while taking a very different approach to generating income. Rather than relying solely on partnership distributions, it layers an options strategy on top of a diversified energy infrastructure portfolio.
What Is MLPI?
MLPI takes a hybrid approach to investing in North American energy infrastructure. Unlike AMLP, it deliberately keeps its MLP allocation below 25% of assets, allowing the ETF to maintain its status as a RIC instead of being taxed as a C-corporation.
That still leaves room for many of the industry’s biggest MLPs, including Energy Transfer and Enterprise Products Partners. The remainder of the portfolio is invested in traditional energy infrastructure corporations such as Enbridge, Williams Companies, TC Energy, Kinder Morgan, and ONEOK.
MLPs are pass-through entities that generally distribute a larger share of their cash flow, often resulting in higher headline yields. Traditional corporations, by contrast, pay corporate income tax before distributing profits and typically offer lower yields, although a greater portion of their dividends may qualify for the lower qualified dividend tax rate.
MLPI charges a 0.68% expense ratio, but the feature that really differentiates it is its options overlay. In addition to collecting distributions from its underlying energy infrastructure holdings, the fund actively sells covered calls to generate additional option premium.
MLPI’s Yield and Performance
One important distinction between MLPI and AMLP is how they report yield. AMLP quotes a trailing 12-month distribution yield and pays distributions quarterly. MLPI, meanwhile, reports a forward distribution rate, calculated by annualizing its most recent monthly distribution and dividing that figure by the current net asset value.
As of the latest data, MLPI reports a 14.76% forward distribution rate. Without the covered call strategy, however, the underlying portfolio produces a much more modest 3.44% 30-day SEC yield. In other words, the options overlay is responsible for most of the fund’s eye-catching headline yield.
The tax characteristics are also worth noting. According to MLPI’s most recent Section 19(a) notice for June, 87% of the current distribution is estimated to be return of capital, while the remaining 13% is classified as net investment income.
Return of capital isn’t necessarily a negative. Instead of creating an immediate tax bill, it generally reduces your cost basis and defers taxes until you eventually sell your shares. Investors familiar with individual MLPs will recognize that return of capital is already a common feature of the asset class.
Despite its high payout, MLPI’s early total return has also been encouraging. According to Testfolio.io, from Dec. 18, 2025 through July 1, 2026, MLPI delivered a 17.4% cumulative total return with distributions reinvested, compared with 14.6% for AMLP over the same period.
Admittedly, that’s a very short performance history, and MLPI remains a relatively new ETF. Still, the combination of avoiding AMLP’s C-corporation structure tax drag while supplementing income through covered calls has produced promising early results. For investors willing to look beyond the largest fund in the midstream energy category, MLPI may be a worthy alternative.
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