Dividends and buybacks continue to drive shareholder returns for MLP/midstream investors.
Dividends have long been a priority for energy infrastructure companies, and in recent years, midstream/MLPs have used excess cash flow for dividend growth and opportunistic buybacks. Buybacks and dividends contribute to a compelling total shareholder yield..
See more: Examining MLP/Midstream Dividend and Buyback Yields
Energy infrastructure companies are able to generate free cash flow independent of energy commodity prices given their fee-based business models. Free cash flow generation is a key theme for midstream/MLPs, with excess cash flow increasingly directed toward shareholder returns.
Dividends Continue to Be Top Driver of Returns
Dividends are the primary way MLPs and midstream companies return cash to shareholders. On a year-over-year basis, most names in both the Alerian MLP ETF (AMLP ) and the Alerian Energy Infrastructure ETF (ENFR ) have grown their payouts.
Specifically, 88.1% of AMLP and 93.9% of ENFR by weighting, as of Aug. 31, increased their dividend within the past year. AMLP and ENFR’s underlying indexes are yielding 7.2% and 5.5%, respectively, as of Sept. 19.
The long-term outlook for dividend growth is constructive, with more examples of dividend raises likely to come in the third quarter.
Buybacks Complement Dividends & Enhance Shareholder Return
Buybacks have become an additional avenue for midstream/MLPs to return cash to investors. Approximately 70% of AMLP and 80% of ENFR by weighting have buyback authorizations in place based on weightings from Aug. 31.
See more: Total Midstream/MLPs Repurchases Top $1 Billion in 2Q24
In 2Q24, AMLP holdings repurchased $165 million in equity, while ENFR holdings repurchased over $1 billion. Within ENFR, Cheniere Energy (LNG) alone accounted for almost $0.5 billion in buybacks.
Repurchase activity can vary for each company based on a number of factors. That said, buybacks remain a flexible tool for returning cash to shareholders and a complement to dividends.
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 and ENFR, for which it receives an index licensing fee. However, AMLP and ENFR 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 and ENFR.
Dividends and buybacks continue to drive shareholder returns for MLP/midstream investors.
