The Alerian MLP ETF (AMLP ) has generated attractive returns for investors in recent years. It is outperforming the S&P 500 so far in 2025, yet MLP valuations have not become overextended.
MLPs continue to screen attractively on several valuation metrics. AMLP’s underlying index, the Alerian MLP Infrastructure Index (AMZI) was yielding 7.61% at the end of May, above its three-year average yield of 7.45%.
Notably, distribution growth is a key focus for MLPs, with six holdings in AMLP showing sequential payout increases for the first quarter. There has not been a distribution cut for an AMLP holding since July 2021. Stock buybacks tend to be used more opportunistically. However, it’s worth noting that two AMLP holdings repurchased a combined $160 million in equity during the quarter.
Solid free cash flow generation is helping fuel MLP distribution growth and equity repurchases. AMLP’s underlying index boasted a trailing 12-month free cash flow yield above 7% at the end of May, which was more than double that of the S&P 500.
MLPs faced pressure in April along with the broader equity market. However, MLP forward estimates have been stable. As a result, AMLP’s underlying index ended May with a forward EV/EBITDA multiple of 8.68×. This figure is below its three-year average of 8.77×.
Given solid returns from MLPs in recent years, investors may be concerned that the space has gotten expensive, but that simply is not the case. For investors seeking income, MLPs may be particularly appealing, given attractive yields backed by solid trends for distribution growth.
While volatility may persist in energy and equity markets, midstream MLPs offer a degree of defensiveness. Their fee-based operational models are less sensitive to commodity price fluctuations, driving stable cash flows. Additionally, above-average yields and attractive valuations add to the appeal of the sector.
For more news, information, and analysis, visit the Energy Infrastructure Channel.
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