While it is well known that midstream investing offers high dividends and stock price appreciation, buybacks are another way that energy infrastructure companies are returning capital to shareholders.
During the fourth quarter of 2021, energy infrastructure companies repurchased $650 million of their equity in aggregate, according to Stacey Morris, CFA, director of research at Alerian, a step down from 3Q21 repurchases of just over $800 million but more than double the $300 million spent on repurchases in 2Q21.
MLPs accounted for the bulk of repurchase activity in 4Q21, headlined by MPLX’s (MPLX) $165 million in repurchases, Enterprise Products Partners’ (EPD) $125 million, and Western Midstream’s (WES) $113 million, which exhausted its prior $250 million buyback authorization, Morris wrote.
Share buybacks or repurchases are an often overlooked method in which companies share their wealth with investors. A stock buyback, also known as a share repurchase, happens when a company buys back its shares from the marketplace. A buyback reduces the number of outstanding shares on the market, which directly increases the ownership stake of the stakeholders.
A company might buy back its shares because it believes the market has discounted its shares too steeply, to reinvest in itself, or to improve its financial ratios, according to Investopedia. Buyback programs generally demonstrate to investors that the company is healthy and has excess cash on hand.
In addition to increasing ownership and sentiment, there are tax benefits associated with firms opting to repurchase company stock instead of increasing dividend payments.
The sector is poised to see more buybacks ahead. In December 2021, Enbridge (ENB) announced a $1.5 billion share repurchase plan, commencing in early January 2022 and expiring in January 2023, according to Morris.
Additionally, Morris noted how, alongside the introduction of an enhanced distribution framework, WES announced last month a new $1 billion buyback authorization for opportunistic repurchases through year-end 2024.
Investors looking to add exposure to energy infrastructure should consider the Alerian Energy Infrastructure ETF (ENFR) and the Alerian MLP ETF (AMLP).
For more news, information, and strategy, visit the Energy Infrastructure Channel.