Rebounding oil prices are stoking the flames of an energy sector rally this year. Obviously, equity upside is paramount, but investors shouldn’t sleep on the income opportunities available in the midstream energy segment.
The VanEck Vectors Energy Income ETF (EINC) is a prime example of an exchange traded fund that delivers midstream income opportunities while removing the need to stock pick in this space. EINC, which follows the MVIS North America Energy Infrastructure Index, sports a dividend yield of 4.46%, as of Nov. 22.
Midstream energy companies, also known as energy infrastructure firms, don’t explore for and produce oil and natural gas. Rather, EINC member firms process, store, and transport oil and natural gas, meaning that the group isn’t always intimately correlated to crude prices. However, midstream offers superior yields relative to some other income-generating asset classes.
“This fee-based model, as well as the necessity of the services provided, helps provide stable cash flows to support attractive dividends. Energy infrastructure also offers greater income than many other yield-oriented investments such as bonds, utilities and Real Estate Investment Trusts (REITs),” says Coulter Regal, VanEck associate product manager.
As of the end of October, yields on the broader energy infrastructure group exceeded those found in junk bonds, investment-grade corporates, the utilities sector, REITs, Treasuries, and broader domestic equity benchmarks.
EINC offers other benefits, including simplicity — a trait that shouldn’t be overlooked in this asset class.
“Direct investment in energy infrastructure, including MLPs (master limited partnerships), has historically been a complex matter. However, with the VanEck Energy Income ETF (EINC), investors can gain comprehensive exposure to North American energy infrastructure companies without K-1 tax reporting, fund-level taxation, leverage or debt counterparty risk,” adds Regal.
EINC, which turns 10 years old next March, holds 29 stocks. Enbridge (NYSE:ENB) and TC Energy (NYSE:TCP) combine for 16.1% of the fund’s weight. Williams Cos. (NYSE:WMB), Kinder Morgan (NYSE:KMI), and Cheniere Energy (NYSE:LNG) combine for another 21.73%. The VanEck ETF is higher by nearly 33% year-to-date.
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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.