Investors who go in on an oil or gas pipeline with partners can pick up a 6% to 7% yield and a tax shield. That might sound like a project only billionaires can buy into, but Master Limited Partnerships (MLPs) are available to income-seekers of ordinary means.

MLPs became popular on Wall Street in the 1980s after sweeping tax changes made them a means for companies to pass income, gains, losses and tax breaks directly to investors without paying corporate tax. Real estate and energy companies adopted the structure as expected, but then companies like housecleaning specialist ServiceMaster and basketball s Boston Celtics figured out how to become MLPs. (The 1980s Celtics had more tax moves than Kevin McHale had low-post pivots.) So in 1987, Congress limited the structure to companies whose income and gains come mostly from mineral and natural resource pursuits, including exploration, production, processing and transportation.

That s why so many of today s MLPs are energy companies. The reason so many are energy pipeline companies has more to do with investor trial and error. Early MLPs used investor money for high-risk ventures like exploration. They paid giant yields, using that term loosely; much of the money was simply investor cash being returned, not earnings from operations, so plenty of dividends proved unsustainable leading to partnership liquidations. In the 1990s, energy companies figured out that MLPs work best for assets with steady returns. Pipelines are perfect. Their owners are generally paid fees based on oil and gas transport volumes, not on the trading price of oil and gas. That makes for predictable revenues and steady, sustainable yields.

Today s MLPs are slow-growth but not low-growth investments. Pipeline MLPs can build or buy new assets thereby increasing their payments. However, they don t keep much money lying around because they must distribute most of their winnings to investors. That means they must raise fresh cash to grow, which costs money, which in turns means they try to choose projects with immediate returns (as opposed to takeover-happy corporations that spend hoarded earnings with only vague promises of future synergies). Also, MLPs are run by general partners whose pay is linked to the increases in distributions for ordinary investors (called limited partners).

Many MLPs are traded like shares of stock making buying and selling fast and cheap, although technically, investors are buying units (not shares) and receiving distributions (not dividends). There s no minimum purchase required, but because tax reporting is a chore (more in a moment), MLPs are best for investors who want to do more than dabble. The tax advantages can be significant for living investors and profound for the heirs of dead ones. A large portion of each MLP distribution (sometimes more than three-quarters) qualifies for tax deferral. Investors pay no current tax on this portion but must reduce their cost basis, which is their purchase price for bookkeeping purposes. Some long-time MLP holders have reduced their cost basis to near zero. Eventually, investors who sell pay a capital gains tax on the sum of all those cost-basis reductions, but nonetheless, taxes deferred are the next best thing to taxes escaped. And death can turn deferral into escape because heirs can adjust the cost basis on inherited units to current market value. (One caveat: You have to die in the next two weeks to take advantage. After Dec. 31, the rules change unless Congress decides something different.)

There are inconveniences to owning MLPs. Investors receive K-1 forms instead of 1099 forms. And, depending on the MLP, they might have to file tax returns in multiple states. MLPs held in tax-deferred accounts like IRAs can result in your friends laughing at you for the redundant tax shield but also in onerous filing requirements and maybe even the triggering of taxes.

There are also risks. MLPs are regarded as an alternative to bonds, so if bond yields rise, MLP prices will likely fall. That is, if investors suddenly find themselves offered 7% on 10-year Treasury bonds, they re unlikely to settle for the same return on an MLP. But then, payments on an ordinary Treasury bond don t grow over time whereas those on an MLP often do. Other risks: A further freezing of credit markets might make it difficult for MLPs to find new loans to fund growth or to refinance existing debt. Also, long-term demand for oil and gas in an MLP s area of operation might decline (think electric cars in the U.S.).

Long-term returns on MLPs have been generous. Alerian Capital Management tracks 50 energy MLPs using two indexes with and without reinvested dividends. The index that includes dividends shows a return of about 350% since the end of 1995. The S&P 500 index hasn t come close to that return. That said, many MLPs are already up 30% to 70% this year perhaps because investors fleeing low-yield savings accounts aren t especially impressed with the yields on stocks and bonds. So be aware that prices could dip from today s levels.

Major MLPs include Kinder Morgan Energy Partners (KMP), Enterprise Product Partners (EPD) and Magellan Midstream Partners (MMP). Their yields range from 6.7% to 7.1%. Download a spreadsheet of Alerian s index constituents from its website. MLP funds can add diversification while simplifying tax reporting. Earlier this year, JP Morgan (JPM) launched an exchange-traded note based on the Alerian index: JP Morgan Alerian (AMJ). Several closed-end funds specialize in MLPs. Examples include Kayne Anderson MLP (KYN), Tortoise Energy Infrastructure (TYG) and Fiduciary/Claymore MLP Opportunity Fund (FMO). Closed-end funds sometimes trade at discounts to the value of their holdings offering investors the opportunity to buy cheap and boost their yields. Alas, these three funds trade at premiums, which is another sign of the asset class popularity.