The Alerian Energy Infrastructure ETF (ENFR) is up nearly 30% year-to-date and sports a dividend yield of 5.73%, as of Aug. 4.
Those two numbers are enough to drum up some interest in the exchange traded fund. Yet there’s even more to the story.
Like so many energy assets and benchmarks, the Alerian Midstream Energy Select Index (AMEI), ENFR’s underlying index, is currently trading at attractive multiples. That’s noteworthy because for a substantial portion of this year, energy was the best-performing group in the S&P 500. Some analysts agree the sector is still inexpensive, particularly when measured against current oil prices.
“With crude oil recently trading around $70 a barrel, the average S&P 500 energy stock should have outperformed the broader index by several times greater than the outperformance seen in 2021, according to Citigroup data,” reports Jacob Sonenshine for Barron’s.
Discounted Prices
Besides the well above-average dividend yields, there are other reasons why energy investors may want to look at ENFR today while multiples are low.
First, midstream energy companies are usually less affected by dramatic swings in crude prices than their integrated and exploration and production peers. Second, ENFR is offering quality at a discount as many of its member firms are firming balance sheets, deleveraging, and returning capital to shareholders via buybacks and dividends.
Then there is the nimbleness of some midstream operators moving into renewable energy, a sign the industry understands that the energy landscape is changing and that individual firms need to participate in that trend or risk becoming obsolete.
“Others on Wall Street have also noted the fairly cheap price of energy stocks. Strategists at Truist recently wrote that energy stocks have been in an “oversold” condition. Just a week ago, none of the S&P 500 energy stocks were trading above their 50-day moving average,” according to Barron’s.
For its part, ENFR resides just 4% below its 50-day moving average and is beating the S&P 500 Energy Index by more than 200 basis points year-to-date.
Other funds with exposure to income-generating energy assets include the VanEck Vectors Energy Income ETF (EINC) and the Global X MLP ETF (NYSEArca: MLPA).
For more on cornerstone strategies, visit our Energy Infrastructure Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.