The Alerian MLP ETF (AMLP) saw total returns above 25% for the second consecutive year in 2022.
AMLP’s underlying index, the Alerian MLP Infrastructure Index (AMZI), increased 31.40% on a total-return basis in 2022, well outperforming the S&P 500 for the second year, which declined -18.11% last year.
Despite strong returns over the past two years, the AMZI is currently trading just slightly above its three-year average EV/EBITDA multiple. The current yield for the AMZI is 7.55%, which is below its three-year average of 9.26%.
Company-level tailwinds enjoyed over the last two years, such as strong free cash flow generation, are expected to continue this year regardless of commodity price movement. With excess cash flow, AMZI constituents will likely continue to prioritize distribution increases and equity repurchases. Equity repurchases remain an important tool for returning capital to investors, and 74.04% of AMZI by weighting had a buyback program in place as of year-end 2022.
The macro outlook is clouded by recession concerns and the related impact to energy demand, but even in a recession, energy infrastructure MLPs will likely hold up better than other energy subsectors. The defensive nature of midstream’s fee-based business model, supported by long-term contracts, limits the impact of commodity prices on cash flows, insulating the segment from plunging prices, as seen in 2020, or the impact of a potential recession.
Midstream MLPs remain well positioned for ongoing inflation given real asset exposure and inflation adjustments typically included in contracts. Despite a cloudy macro picture, the positive momentum for energy infrastructure MLPs could continue in 2023 as company-level tailwinds are expected to remain intact, according to Stacey Morris, head of energy research at VettaFi.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
vettafi.com is owned by VettaFi, which also owns the index provider for AMLP. VettaFi is not the sponsor of AMLP, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.