The third quarter proved to be a financially sound one for midstream companies, with many maintaining or else increasing their distributions, and the outlook appears to be overwhelmingly positive for the upcoming year, wrote Stacey Morris, CFA for Alerian, in an insights paper.
Midstream companies not only didn’t cut dividends, but in many cases they actually increased dividend payments this last quarter, in an environment that has allowed free cash flow in larger quantities. Companies are not only increasing distributions in some cases but are also repurchasing units at the same time in a vote of confidence in performance.
This was the first time since before the pandemic started that securities within the Alerian Midstream Energy Index (AMNA), the Alerian MLP Index (AMZ), and the Alerian MLP Infrastructure Index (AMZI) didn’t cut dividends, and many are anticipating future dividend growth and will make announcements in this next quarter about 2022 distribution growth guidance.
A breakdown of dividends paid year-over-year (with dividends upcoming in Q4 based on already-announced Q3 performance) show that companies continue to maintain dividends or else grow them when comparing absolute numbers. If broken down by weighting, the dividend growth is even greater, with a higher percentage of companies reporting growth than simply maintaining. Companies that did not have data for both years within the indexes were excluded.
With announcements on the way in January and December, the sector appears to be confident in its upward movement, and the outlook remains optimistic for investors. The ETRACS Alerian Midstream Energy High Dividend Index ETN (AMND ) is an excellent way to gain exposure to the sector and the dividend growth potential it is exhibiting.
AMND is an exchange traded note (ETN) that seeks to provide unleveraged long exposure to the Alerian Midstream Energy Dividend Index’s performance. The index is fundamentally weighted based on the dividend-paying, liquid part of the energy infrastructure market in the U.S. and Canada.
The fund may pay a variable quarterly coupon that’s linked to the cash distributions associated with the index constituents. If those constituents do not produce distributions, investors will not receive coupons.
ETNs are unsecured, senior, unsubordinated debt securities that give investors exposure to markets and indexes; AMND provides exposure to the midstream industry.
The fund carries an annual tracking fee rate of 0.75%, accrued on a daily basis.
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