If there are two things investors are craving these days, it’s ways to fight inflation and opportunities to generate more income. Some exchange traded funds do one but not the other. The VanEck Vectors Energy Income ETF (EINC) is one asset that accomplishes both.
As has been widely noted, natural resources equities are, historically, strong avenues for beating inflation. Plus, stocks offer more upside potential than fixed income instruments designed to guard against rising consumer prices. When it comes to income, EINC offers a dividend yield of 4.74%.
Mounting inflationary pressures, though likely transitory, bode well for EINC over the near-term.
“The historic fiscal and monetary policy response to the COVID-19 crisis has reignited the urgency of inflation discussions as the global economy reopened,” notes VanEck in a recent report. “Meanwhile, commodity and resource supply has been constrained from the sharp drop in capital investment over the last several years. In simplified terms, there is more money in the system, increased government and consumer spending, and rising prices through consumption.”
The Prognosis for Energy Income
EINC, which recently turned nine years old, tracks the MVIS North America Energy Infrastructure Index. That gauge features midstream companies that process, store, and transport natural gas and crude oil.
For income investors, EINC’s midstream exposure is relevant because that group not only delivered strong first-quarter results, but firming balance sheets and impressive free cash flow. Those are signs EINC components can support and grow payouts and could engage in share repurchases later this year.
With EINC, those perks come with performance. At least this year as the fund is higher by 31%. Much of that showing is attributable to resurgent oil prices and the energy sector’s status as a value play. However, there’s also an element of growth with EINC long-term investors can tap into.
“More specifically, we believe companies in this areas, particularly within energy, industrials metals and gold, have healthy balance sheets, attractive valuations and the ability to generate significant free cash,” adds VanEck. “Many companies also exhibit what we view as fascinating longer term growth profiles as direct inputs and beneficiaries of the resource transition movement fueled by technological advances and sustainability.”
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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.