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Alerian Energy ETF Provides Relief in a Low-Yield World

This article was originally published on ETFTrends.com.

Up 11.21% year-to-date, the Alerian Energy Infrastructure ETF (ENFR) is outperforming a slew of traditional energy ETFs, but more attractive than that is ENFR dividend yield of 4.21%, which is particularly attractive at a time of low-yield fixed income assets around the world.

ENFR acts as a type of hybrid energy infrastructure ETF, which could help investors capture some of the high yields from MLPs but limits the tax hit from solely owning MLPs. Importantly, many midstream MLPs and energy infrastructure companies are working to deleverage their balance sheets.

Importantly, research suggests that some MLPs and energy infrastructure names are boosting distributions, a potentially alluring trait to income investors in the current climate. And there no dividend cuts in the Alerian MLP Infrastructure Index (AMZI), ENFR's underlying index, in the second quarter. In the April through June quarter, 13 of the 22 members of that index boosted payouts.

“The majority of AMZI constituents (59%) grew their distribution on a quarter-over-quarter basis. Notably, Enable Midstream Partners (ENBL) announced a 3.9% distribution increase, raising its distribution for the first time since October 2015,” according to new research from Alerian.

Call On ENFR For Higher Payouts

MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.

“Other large quarterly growers in the AMZI include Noble Midstream Partners (NBLX) at 4.7% and Shell Midstream Partners (SHLX) at 3.6%, both of which are dropdown MLPs that possess incentive distribution rights (IDRs) in the high splits (though SHLX’s parent has waived $50 million in IDR payments for 2019,” according to Alerian.

Related: The Midstream Matters With This MLP ETF 

Dividend action in the MLP space is trending in the right direction, particularly as companies here improve balance sheets and move away from large-scale consolidation.

“With consolidation transactions in late innings, backdoor cuts seem to largely be behind the space, which should also lead to more stable distributions. Finally, distribution coverage remains healthy, implying that MLPs are better able to afford their payouts. Stay tuned for more on that topic next week,” notes Alerian.

For more information on master limited partnerships, visit our MLPs category.