Master Limited Partnerships (MLPs) offer income investors attractive yield with potential tax advantages. Investors would do well to look to midstream MLPs, given their post-pandemic strengthening and tailwinds for the space.
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“MLPs are pass-through entities; they trade on public exchanges,” explained Stacey Morris, head of energy research at VettaFi, in a livecast earlier this month. When buying an MLP, investors are actually buying into a portion of the partnership. As such, income passes through to them. This makes investors responsible for the taxes earned on their portion of the net taxable income, accounted for on a Schedule K-1.
While some investors prefer to own MLPs directly, others prefer to access MLPs through investment vehicles to receive a Form 1099, instead of a Schedule K-1.
The Unique Proposition of Midstream
While there are other types of MLPs, midstream MLPs offer a unique opportunity for investors. Midstream typically refers to the companies that ship, transport, process, and store oil, gas, and other hydrocarbons. In the wake of the COVID pandemic, midstream companies meaningfully grew their free cash flow. This in turn allowed them to engage in buybacks.
“I think buyback authorizations are an important development because, if you haven’t looked at this space in a long time, you may remember this space being somewhat notorious for doing secondary offerings,” Morris shared. “Now, the space has largely reversed from that and most large MLPs have buyback authorizations in place.”
Post-pandemic, MLPs also reduced their debt, leading to less leverage overall, as well as better balance sheets. Notably, they’ve demonstrated strong distribution growth which historically results in solid performance for the space as a whole. It’s a trend that Morris anticipates will continue looking ahead, making midstream MLPs an attractive income option for investors.
Tailwinds Create a Compelling Case for MLPs
A number of tailwinds exist for midstream in the coming years. These include growing demand for natural gas from rising LNG exports and increasing demand from utilities and data centers. A positive regulatory backdrop is also unlocking greater opportunities for the space. “That’s manifesting in new LNG projects moving forward — that’s adding to long-term demand for natural gas,” explained Morris.
For advisors and investors with an eye to valuations, midstream appears well-positioned. Despite distribution growth and healthier balance sheets in recent years, as well as strong performance, MLP valuations remain at a discount to long-term averages.
The Alerian MLP ETF (AMLP ) provides exposure to the Alerian MLP Infrastructure Index (AMZI). The index is a capped, float-adjusted, capitalization-weighted composite of energy infrastructure MLPs. Morris noted AMZI traded at 9.0x 2026 EBITDA compared to the 10-year average of 9.7x as of the end of July. As of August 27, AMZI was yielding 7.55%.
“For all those reasons, I think the outlook here is still strong, particularly around tailwinds from distribution growth and tailwinds from natural gas growth opportunities,” said Morris.
Those investors wanting to peer into the 2026 midstream crystal ball shouldn’t miss the upcoming webcast on September 3 at 2:00 p.m. ET, hosted on the VettaFi platform. You can register here for the “Checking MLP/Midstream Fundamentals as 2026 Approaches.”
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For more news, information, and analysis, visit the Energy Infrastructure Content Hub.
vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for AMLP, for which it receives an index licensing fee. However, AMLP is 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.
