Midstream investing has had a strong showing so far in 2024. And investors are now wondering how the rest of the year will fare.
Following strong overall 1Q24 earnings for midstream companies, expectations are being laid for momentum to continue. “We expect to see continued free cash flow generation,” said Stacey Morris, CFA, Head of Energy Research at VettaFi, during a recent VettaFi webcast. Free cash flow projections come as midstream corporations and Master Limited Partnerships (MLPs) have displayed stable and growing cash flows over the years, independent of energy prices at the time.
See More: Midstream / MLPs See Sustained Free Cash Flow
Along with continued free cash flow generation, Morris expects more dividend growth and buybacks to occur this year. She also sees an upside to 2024 financial guidance given strong first-quarter results and a solid macro landscape thus far. “It’s very possible that we may see companies come out and raise guidance for the year with their 2Q and 3Q results,” added Morris.
Macro Factors to Consider
While the company-level outlook remains robust, macroeconomic conditions carry more uncertainty. For example, while natural gas prices have been improving lately, prices are likely to remain volatile. Morris expects natural gas prices will “probably get better into 2025” as new LNG export facilities come online.
On the oil side, prices weakened after OPEC+ recently announced plans to roll back voluntary oil cuts in October 2024.
“They’ve been very clear that’s subject to market conditions, and oil has bounced back again, after initially falling on the news, but we’re probably going to see volatility from an oil price perspective as well,” added Morris.
Importantly, midstream companies operate fee-based businesses that are less sensitive to volatility in oil and gas prices, but prices can impact sentiment. Investors may turn to midstream for more defensive energy exposure if concerned about commodity prices.
Investment Options
For investors with an optimistic outlook for midstream companies, the Alerian Energy Infrastructure ETF (ENFR ) can provide income and capital appreciation. The fund is benchmarked to the Alerian Midstream Energy Select Index (AMEI), a float-adjusted and cap-weighted index that invests in corporations and MLPs engaged in midstream operations.
As of June 12th, 2024, the fund has seen about $4.5 million in fund flows over the last month, indicating potential investor confidence. These flows come as ENFR offers a trailing twelve-month yield of 5.09%, as of June 12th, 2024.
Investors who prefer MLP exposure may consider the Alerian MLP ETF (AMLP ), which has seen year-to-date inflows of $474 million. As of June 12th, 2024, AMLP has a trailing 12-month yield of 7.60%.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for ENFR and AMLP for which it receives an index licensing fee. However, ENFR and AMLP are not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of ENFR and AMLP.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
