Quality Matters When Considering Yield-Generating MLP ETFs

While the ALPS Alerian MLP ETF (NYSEArca: AMLP) has recently announced a lower distribution, the revised dividend payout is not a cause for concern. The underlying cause for the changes may actually benefit investors in the long-run.

AMLP is the largest master limited partnership-related ETF available, with close to $8 billion in net assets under management, which means that a lot of MLP investors are looking at the fund to gauge the sector. Consequently, some investors may be surprised by the sudden dividend decrease to $0.240 per share at its latest distribution.

However, “don’t misconstrue lower yields a negative,” Jeremy Held, Director of Research at ALPS Advisors, told ETF Trends in a call, pointing out that no underlying components cut their distributions.

Related: Downtrodden MLP ETFs May Offer Long-Term Opportunity

Held explained that lower yields in the MLP space can occur for a variety of reasons, some of which are actually a sign of health in the sector: First off, yields fall as prices rise, and MLPs have been rebounding along with the oil prices and the broader energy sector – AMLP has surged 52.9% since its February 11 low. Secondly, the yield can go down due to changes within the underlying benchmark index – AMLP tracks the Alerian MLP Infrastructure Index, which includes 24 pipeline and processing MLPs.

“The yield on an MLP index can also fall due to rebalancing and reconstitution in the index. Alerian uses a strict index methodology which requires that only larger, higher quality companies are retained in the Index,” Held said.


The rebalancing and reconstitution may be beneficial for investors as it helps to potentially eliminate high-stress MLPs and replace them with higher quality options. However, riskier MLPs also come with higher yields, so the change up can reduce overall yields for investors in exchange for greater stability.