Midstream Dividend Update: More Maintaining Than Cutting

Given most midstream dividends for 1Q20 have now been announced, today’s piece discusses how payouts are trending amid a challenging macro environment for energy. While there have been a number of dividend cuts to date, the majority of constituents by weighting in both the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Select Index (AMEI) are maintaining their dividends sequentially with a few names even growing (see charts below). Note that two AMEI constituents have yet to report dividends (listed as “Unknown” in the charts). For the AMZI, the weighting of MLP constituents growing or maintaining their distributions is 68.5%, while the weighting is slightly lower at 61.9% for the MLPs and C-Corps of the AMEI. The quantity of sequential dividend cuts in both indexes is significant but notably weighted toward smaller names. Twelve out of 21 AMZI constituents have announced distribution cuts accounting for 31.5% of the index by weight, while 14 out of 34 AMEI constituents have announced cuts representing 20.2% of the index. Many of the companies that have cut share similar characteristics, including greater exposure to the wellhead given gathering and processing activities, higher leverage, and lower distribution coverage (read more). With a handful of midstream companies still to declare dividends for 1Q20, it is possible we see additional dividend cuts in the coming days. However, the high percentage of companies maintaining or growing their payouts demonstrates that midstream dividends, especially among the larger names in the space, have proven relatively resilient in a volatile oil market. Incorporating dividend updates through April 30, the yields for the AMZI and AMEI were 11.7% and 8.4%, respectively, at month end.