SUMMARY
- On a year-over-year basis, more than 80% of the Alerian Midstream Energy Index (AMNA) by weighting have grown their dividends. No AMNA constituent has cut its regular dividend since July 2021.
- Dividend growth supports midstream/MLP yields, which remain attractive relative to other income investments.
- Some names have already announced dividend growth for 1Q25, and ongoing free cash flow generation continues to drive a constructive outlook for midstream/MLP payouts.
Dividend growth continues to be a tailwind for midstream/MLPs, given strong free cash flow generation and an emphasis on shareholder returns. On a sequential and YoY basis, companies have been raising their payouts as their cash flows also grow. Today’s note recaps 4Q24 dividend increases, examines midstream/MLP yields, and discusses the outlook for continued growth.
4Q24 Dividends: Several Examples of Growth
A few large corporations announced annual increases with their 4Q24 dividends. And a handful of MLPs continued to execute on quarterly increases. With one exception, percentage increases were in the low-to-mid-single digits. Fourth-quarter dividends continue the solid growth seen in recent years (read more). Importantly, no constituent in the broad Alerian Midstream Energy Index has cut its regular dividend since July 2021.
Leading the way, Plains (PAA/PAGP) announced a 19.7% increase to its payout for 4Q24 to $0.38 per unit. Williams (WMB), which saw the second-greatest increase among AMNA constituents, raised its quarterly payout 5.3% to $0.50 per share. Similarly, ONEOK (OKE) increased its quarterly dividend by 4.0% to $1.03 per share.
Following PAA, WMB, and OKE, Enbridge (ENB CN) increased its dividend by 3.0%. Hess Midstream (HESM), raised its payout 2.4% to $0.7012 per share. Large MLPs Enterprise Products Partners (EPD) and Energy Transfer (ET) also made sequential increases to their quarterly distributions by 1.9% to $0.535 per unit and by 0.8% to $0.325 per unit, respectively. Other MLPs with sequential distribution increases include Global Partners (GLP) at 1.4%, Sunoco (SUN) at 1.2%, and Delek Logistics (DKL) at 0.5%.
TC Energy (TRP CN) spun off its liquids business as a separate entity, named South Bow Corporation (SOBO CN), on October 1, 2024 (read more). TRP adjusted its dividend in proportion to the liquids business spinoff, while SOBO paid its inaugural dividend of US$0.50 per share in January 2025. TRP is included as maintained in the charts below.
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 4Q24 payouts to those made for 3Q24. To be clear, 4Q24 dividends refer to dividends paid in 1Q25 based on operational performance in 4Q24.
Bias Toward Growth Evident in YoY Comparison
Looking at dividend growth on an annual basis provides a clearer picture of how widespread the positive trend is across the midstream/MLP landscape. More than 80% of AMNA, AMZI, and AMZ by weighting as of February 25 have increased their payouts over the last year. The majority of constituents by absolute numbers have raised their payouts YoY.
Dividend Growth Supports Midstream/MLP Yields
The midstream space is known for providing healthy yields compared to other income investments, led by MLPs, as shown in the chart below. While strong price performance in recent years has put some pressure on midstream/MLP yields, dividend growth has helped maintain attractive yields. Importantly for income investors, midstream/MLP yields are not impacted by interest rate movements. Payouts are supported by fee-based businesses with stable cash flows that have solid coverage ratios and manageable leverage.
Midstream/MLP Dividend Growth Has Runway
The outlook for continued midstream dividend growth remains strong (read more). Some companies have already announced increases for their 1Q25 payouts, with a few other names providing multiyear dividend growth targets. The telegraphed growth provides helpful visibility for investors and sets a clear objective for management teams to execute against.
Notably, DT Midstream (DTM) and Gibson Energy (GEI CN) have announced an increase to their quarterly payouts for April by 11.6% to $0.82 and by 4.9% to $0.43, respectively. Last week, Aris Water Solutions (ARIS) also announced a 33% increase to its 1Q25 dividend to $0.14 per share.
More dividend hikes are on the horizon for 1Q25. Targa Resources (TRGP) reaffirmed its intention to recommend a 33.3% increase to its 1Q25 dividend to $1.00 per share. Western Midstream (WES) announced plans to recommend a 4.0% increase to its 1Q25 distribution to $0.91 per unit. Sunoco is targeting at least 5% distribution growth for 2025 and plans to announce increases on a quarterly basis (read more). Kinder Morgan (KMI) plans to increase its dividend by 1.7% for 2025.
Others have provided long-term targets for growth. For example, Cheniere Energy (LNG) has guided to 10% annual dividend growth through the end of the decade, company management reaffirmed during its 4Q24 earnings call. Hess Midstream is targeting at least 5% distribution growth through 2027.
Bottom Line:
4Q24 payouts highlight the continued positive momentum in midstream/MLP dividend growth, which support attractive yields. Looking ahead, with continued free cash flow generation and growth projects coming online, dividend growth is expected to be an ongoing tailwind for the space.
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), the ETRACS Alerian MLP Index ETN Series B (AMUB), and the ETRACS Quarterly Pay 1.5x Leveraged Alerian MLP Index ETN (MLPR).
Related Research:
Charting Annual MLP Distribution Changes & Performance
1Q24 Midstream/MLP Dividends: Growth Story Intact
2Q24 Midstream Dividend Recap: MLPs Drive Growth
Meet the New Canadian Name in Midstream
3Q24: Another Strong Quarter for Midstream/MLP Payouts
Looking for Income as Rates Fall? Try Midstream/MLPs
Midstream/MLP Dividend Outlook: More Growth to Come
Hess Midstream CFO: Growth Opportunities, Balance Sheet Strength & Shareholder Returns
Sunoco COO on Growing Distributions, NuStar Acquisition, & Overlooked Opportunities
VettaFi.com owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMJB, AMUB, MLPR, AMLP, and MLPB, for which it receives an index licensing fee. However, AMJB, AMUB, MLPR, AMLP, and MLPB 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 AMJB, AMUB, MLPR, AMLP, and MLPB.
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