Energy has ranked as this year’s best-performing sector, and many investors are scrambling to source income away from the bond market, so it’s no surprise that midstream energy stocks and the related ETFs are garnering more attention.
This corner of the energy patch makes good on the promise of big-time income. Thanks to the MLP & Energy Infrastructure High Income ETF (MLPI ), market participants can really ratchet up the income proposition associated with master limited partnerships (MLPs) and other midstream energy names.
MLPI, an actively managed options income ETF, launched last December. The combination of options and midstream energy heaps income upon income. And MLPI does just that, as highlighted by a 30-day SEC yield of 3.44% and a distribution rate of 14.76%. The latter is big even by midstream energy standards.
More Reasons to Evaluate MLPI
MLPI has nearly $649 million in assets under management. That confirms that the ETF is off to a strong start, and that advisors and investors like its enhanced income. But there’s more to the story.
“An important part of the case for midstream is that the sector is considered less vulnerable to a decrease in energy prices, which could occur at the end of the Iran war. That is because MLP revenue typically comes from long-term contracts that are tied to volume, not the price of gas or oil,” reported Amey Stone for Barron’s.
In other words, there’s a strong case for considering MLPI, not entirely dependent on income. Although it’s an options income ETF, MLPI offers some upside participation should midstream energy stocks in the fund rally.
That already happened this year, but there’s good news for late-arriving investors. Broadly speaking, strong fundamentals support the midstream energy industry. Those fundamentals include noteworthy cash flow generation and compelling demand trends. Plus, midstream energy has a knack for being less volatile than the exploration, production, and integrated oil segments.
“Not only do these businesses (MLPs) have less debt and stronger free cash flow, but demand for their services—mostly operating pipelines and storage facilities for oil and natural gas—is set to increase. The enormous energy needs of artificial intelligence are driving that demand, as are the effects of the Iran war,” according to Barron’s.
For more news, information, and analysis, visit the Tax Efficient Income Content Hub.
