3Q24: Another Strong Quarter for Midstream/MLP Payouts

• On a year-over-year basis, more than 95% of the Alerian Midstream Energy Index (AMNA) by weighting has grown their dividends. No AMNA constituent has cut its regular dividend since July 2021.
• Dividend growth enhances already generous yields from midstream/MLPs, which remain attractive relative to other income investments.
• Company commentary and ongoing free cash flow generation continue to drive a constructive outlook for midstream/MLP payouts.

Dividend growth has been a key tailwind for the midstream space in recent years, enhancing already generous payouts. Those tailwinds continued in the third quarter and are expected to extend to 2025 and beyond. Today’s note recaps 3Q24 midstream/MLP dividend growth, examines current yields, and looks at future dividend growth outlined by companies.

Third-quarter dividend announcements featured notable increases, including examples of double-digit percentage growth and hikes from names that have maintained their payouts for years. Importantly, there were no cuts announced this quarter. No constituent in the broad Alerian Midstream Energy Index has cut its regular dividend since July 2021.

The largest sequential percentage increase was from C-Corp Cheniere Energy (LNG), which increased its dividend by 14.9% to $0.50 per share as originally previewed in June. Leading MLPs, MPLX (MPLX) raised its distribution by 12.5% to $0.9565 per unit, which represented a step up from 10% increases announced in November 2022 and November 2023.

Other companies made dividend growth milestones this quarter. MLP Genesis Energy (GEL) increased its distribution by 10% to $0.165 per unit, marking its first increase since cutting its payout in 2020. Note that percentage increases appear large given a lowered base from cutting in the past. C-Corp Kinetik Holdings (KNTK) raised its dividend for the first time since it began paying a dividend in 2021, hiking by 4.0% to $0.78 per share.

Other companies continued their pattern of growing their payout each quarter. Hess Midstream (HESM) increased its distribution 2.5% to $0.6846. Delek Logistics Partners (DKL) increased 0.9% to $1.10 per unit, and Energy Transfer (ET) increased 0.8% to $0.3225 per unit. ET has an annual growth target of 3-5%.

The pie charts below show quarter-over-quarter changes to dividends for AMNA, the Alerian MLP Index, and the Alerian MLP Infrastructure Index by comparing 3Q24 payouts to those made for 2Q24. To be clear, 3Q24 dividends refer to dividends paid in 4Q24 based on operational performance in 3Q24. 

Given that many companies only increase their payouts once each year, a year-over-year comparison can be more useful for illustrating dividend trends. As shown in the charts below, over 90% of AMNA and AMZI by weighting have grown their payouts relative to 3Q23. Over 85% of AMZ by weighting has grown distributions in the last year. With the increases from GEL and KNTK, the charts below show a strong bias toward growth. The number of companies across the indexes that have maintained payouts is a clear minority.

Midstream/MLPs are known for providing attractive yields relative to other income investments. Even as equity performance has been strong in recent years, dividend growth has helped buoy midstream index yields. With the recent interest rate cuts by the Federal Reserve, income investors could increasingly look to midstream to help offset lower yields from fixed income (read more be clear, midstream/MLPs are equities and not bond substitutes, but strong dividend trends add to the confidence in payouts from this space.

Looking ahead, midstream companies are expected to continue prioritizing dividend growth. Some companies have provided long-term targets, such as TC Energy’s (TRP CN) expectation for annual dividend growth of 3-5% or HESM’s guidance for distribution growth of at least 5% through 2026. HESM has even been exceeding that target (read more).

On their earnings call, MPLX’s management conveyed the durability of 12.5% distribution growth in future years.

Management at Targa Resources (TRGP) expects to recommend to its board a 33% dividend increase to $4.00 per share annually for 2025. For 1Q24, TRGP increased its dividend by 50% to $3.00 per share annually. Company commentary and ongoing free cash flow generation continue to drive a constructive outlook for midstream/MLP payouts.

The latest quarterly announcements have only added to the positive momentum in midstream dividends, and yields remain compelling. Looking ahead, dividend growth is expected to be an ongoing tailwind, underpinned by free cash flow generation and prioritization of shareholder returns.

AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). AMZ is the underlying index for the JPMCFC Alerian MLP Index ETN (AMJB) and the ETRACS Quarterly Pay 1.5x Leveraged Alerian MLP Index ETN (MLPR). AMNA is the underlying index for the ETRACS Alerian Midstream Energy Index ETN (AMNA).

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