Up 6.47% year-to-date, the Alerian MLP ETF (AMLP) (NYSEArca: AMLP) is performing among Master limited partnerships ETFs this year.
AMLP seeks investment results that correspond (before fees and expenses) generally to the price and yield performance of its underlying index, the Alerian MLP Infrastructure Index. The index is a composite of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities, is disseminated real-time on a price-return basis (AMZI) and on a total-return basis (AMZIX).
Importantly, research suggests that some MLPs are boosting distributions, a potentially alluring trait to income investors in the current climate.
“The majority of AMZI constituents (59%) grew their distribution on a quarter-over-quarter basis. Notably, Enable Midstream Partners (ENBL) announced a 3.9% distribution increase, raising its distribution for the first time since October 2015,” according to new research from Alerian.
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 have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.
“Other large quarterly growers in the AMZI include Noble Midstream Partners (NBLX) at 4.7% and Shell Midstream Partners (SHLX) at 3.6%, both of which are dropdown MLPs that possess incentive distribution rights (IDRs) in the high splits (though SHLX’s parent has waived $50 million in IDR payments for 2019,” according to Alerian.
Dividend action in the MLP space is trending in the right direction, particularly as companies here improve balance sheets and move away from large-scale consolidation.
“With consolidation transactions in late innings, backdoor cuts seem to largely be behind the space, which should also lead to more stable distributions. Finally, distribution coverage remains healthy, implying that MLPs are better able to afford their payouts. Stay tuned for more on that topic next week,” notes Alerian.
For more information on master limited partnerships, visit our MLPs category.