Delving Into MLP/Midstream Total Shareholder Yield

• By combining buyback and dividend yields, investors can get a better sense of total shareholder yields for MLPs/midstream.
• For MLPs, dividend yields have remained fairly stable since 2021, while buyback yields have contracted.
• For broader midstream, strong performance compressed buyback and dividend yields for 2024, even as repurchases and dividend growth remained strong.

For energy infrastructure, dividends remain the primary method for returning capital to shareholders, preserving a long legacy of providing attractive income to investors. Since a free cash flow inflection in 2020-21, however, companies have also been active with share repurchases. This note looks at total shareholder yield at the index level for MLPs/midstream, incorporating dividends and buybacks. (See recent notes on dividends and buybacks for company-level details.)

Dividend yields are frequently cited in VettaFi research, but buyback yields tend to be more obscure. By combining buyback and dividend yields, investors can get a better sense of total shareholder yields. While the data is backward looking, trends over time can be informative.

The chart below shows the trailing 12-month (TTM) dividend yields and buyback yields for the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Select Index (AMEI) at the end of each year. AMEI, which is 75% US and Canadian midstream C-Corps and 25% MLPs, is used to represent broader midstream. Buybacks, including share repurchases from parent companies, are based on full-year repurchases from annual reports.

Index price returns add important context to yield data. Index market cap, the denominator in the yield calculation, increased throughout the periods shown, which puts downward pressure on yields. Even though yields have come down over time, they remain compelling. The text below digs more into the data for MLPs and broader midstream.

Since 2021, the TTM dividend (distribution) yield for AMZI has been fairly stable. MLPs have prioritized distribution growth. Double-digit percentage increases for select names and consistent moderate growth from others have helped maintain TTM dividend yields around 7% even as equities have gained. The yield has also remained fairly stable despite some AMZI constituents being acquired over this timeframe.

Meanwhile, buyback activity has waned. AMZI constituents, including former MLP Magellan Midstream Partners, were more active with buybacks coming out of the pandemic when equity prices were depressed. For AMZI, aggregate buybacks have fallen each year since 2021, while index market cap has increased.

Including equity repurchases from sponsors, total buybacks in 2024 were just under $1 billion, compared to almost $2.6 billion in 2021. The result is a fairly negligible buyback yield at the index level, despite quarterly repurchases in 2024 by MLPs MPLX (MPLX) and Enterprise Products Partners EPD totaling $326 million and $219 million, respectively.

AMEI’s dividend and buyback yield stepped down in 2024 as its market cap increased from $522 billion at year-end 2023 to over $700 billion at the end of 2024. Keep in mind that some of the names focused on natural gas infrastructure saw price gains above 50% in 2024, including S&P 500 components Kinder Morgan (KMI) and Williams (WMB). Targa Resources (TRGP) was up over 100% last year but still repurchased over $750 million in equity.

Aggregate buyback spending was actually up slightly year-over-year in 2024, driven largely by Cheniere Energy (LNG) and TRGP. Meanwhile, the vast majority of AMEI constituents are growing their dividends. There has not been a cut to a regular dividend for an AMEI constituent since July 2021. Lower dividend and buyback yields for 2024 should be viewed in the context of strong equity performance.

Index-level dividend and buyback yields can provide helpful context to investors focused on shareholder returns in the MLP/midstream space. Yields have generally come down over time with improved equity performance but remain compelling.

AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR) and the Alerian Energy Infrastructure Portfolio (ALEFX).

Examining MLP/Midstream Dividend and Buyback Yields

4Q24 Midstream/MLP Dividend Recap: Growth Continues

Midstream/MLP 4Q Buybacks Add to Robust 2024

For more news, information, and analysis, visit the Energy Infrastructure Channel.

Vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP, MLPB, ENFR, and ALEFX, for which it receives an index licensing fee. However, AMLP, MLPB, ENFR, and ALEFX are not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of AMLP, MLPB, ENFR, and ALEFX.