The energy sector lagged the broader market in 2017, but the group cobbled together some momentum late in the year. On the back of rebounding oil prices and soaring U.S. output, some of that momentum is making its way to 2018 and that bullishness is affecting master limited partnerships (MLPs).
For example, the Alerian MLP Infrastructure Index (AMZI Index) jumped 5.94% in January. That is the underlying index for the Alerian MLP ETF (AMLP), the largest exchange traded fund (ETF) dedicated to MLPs. MLPs are an asset class beloved by income investors due to dividend yields that exceed those of traditional equity investments. To gain the tax-advantaged status of MLPs, these partnerships must pay out significant percentages of their cash flows in the form of distributions.
It is not unusual for MLPs to sport higher dividend yields than competing income assets, such as real estate and Treasuries. The chart below confirms the high-yield status of MLPs relative to rival income-generating assets.
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