Investors should understand that MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. Consequently, MLPs act more like energy toll roads. MLPs also operate under very long-term contracts, so any temporary short-term changes in oil or gas typically have little to no effect on revenue streams. [Getting it Wrong With MLP ETFs]
Consequently, with oil production on the rise, MLPs could continue to generate greater revenue growth and more dividends for investors. AMJ has a 3.93% 12-month yield and AMLP shows a 6.72% 12-month yield. [How MLP ETFs Work]
“We continue to favor large, diversified, fee-based midstream MLPs with limited commodity exposure,” Litzermand said. “The reliable distributions of these investment-grade partnerships are expected to continue to grow, even at current energy prices.”
For more information on master limited partnerships, visit our MLPs category.