Midstream Yields Above 10-Year Averages, Enhanced by Energy Sell Off

Investments in midstream and MLPs continue to offer compelling income, especially compared to other equity income investments.

While energy markets have been volatile in recent weeks, midstream is a space that has defensive qualities and has the added benefit of generating income to help offset some of the volatility, Stacey Morris, head of energy research at VettaFi, said during a webcast on Wednesday.

Notably, the majority (54%) of advisors are now using MLPs/ energy infrastructure investments for income, according to “Midstream/MLPs: Can the Strong Fundamentals Persist?” (Date: March 23, 2023. Sample size: 296 respondents, 31.4% RIAs.)

Midstream yields are currently sitting above their 10-year averages, further enhanced by the energy sell-off last week, Morris said. The Alerian MLP Infrastructure Index (AMZI) is yielding 8.25% and the Alerian Midstream Energy Select Index (AMEI) is yielding 6.7% as of March 21.

AMZI is an index of energy infrastructure MLPs, and it is the index that underlies the Alerian MLP ETF (AMLP), and AMEI is an index that comprises 25% MLPs and 75% midstream C-corps in U.S. and Canada. AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR).

Midstream and MLP yields are supported by solid underlying dividend trends. 12 out of 15 constituents in AMZI raised their payouts on a year-over-year basis. The companies that grew their payouts represent almost 92% of the index by weighting. For AMEI, 19 out of 29 names increased their payouts on a year-over-year basis, representing 82% of the index by weighting, according to Morris.

Something worth noting is there have been no dividend or distribution cuts across the indexes for six consecutive quarters, Morris said.

“Another important point to make as we think about the yields in this space is that most of these companies are high-quality companies with investment-grade balance sheets,” Morris added. “Looking at both the AMZI and the AMEI by weighting, about 76% of both indexes are weighted towards companies that have investment grade credit ratings.”

For more news, information, and analysis, visit the Energy Infrastructure Channel.

vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP and ENFR, for which it receives an index licensing fee. However, AMLP and ENFR are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of AMLP and ENFR.