This year is ugly for energy, but one income-producing corner of the market is holding up

CNBC

08-05-2025

While last month was turbulent for the energy sector overall, a few bright spots within the industry managed to emerge – and those names happen to offer attractive dividends. The S & P 500 energy sector posted a nearly 14% decline for April, languishing alongside the falling price of oil. U.S. crude oil futures tanked nearly 19% last month, while Brent crude , the international oil benchmark, slid more than 15%. Recession fears and oversupply concerns fueled the slide in oil prices, with OPEC+ agreeing to boost production by 410,000 barrels per day in June . But even as the energy sector has suffered in 2025, it remains attractive, Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said in a note last week, when her team upgraded the group to overweight from market-weight. "S & P Energy is different this time: [management] compensation is aligned not with production targets but with cash return – dividends are sacrosanct," she said, adding that energy companies should largely be exempt from tariffs and their free cash flow yield is "well above average at 6%." "If stagflation is the base case, Energy is more likely to outperform than underperform," Subramanian wrote. In April, some corners of the energy sector managed to stave off the worst of the declines: midstream and downstream companies – better known as pipelines and refiners. Consider that the Global X MLP & Energy Infrastructure ETF (MLPX) fell 5.7% in April, while the VanEck Oil Refiners ETF (CRAK) dropped 3.5%. CRAK YTD mountain VanEck Oil Refiners ETF in 2025 Both are also managing to hold their own in 2025, with MLPX down less than 1% and CRAK up more than 4%, even as the energy sector as a whole is down more than 3%. "Upstream – exploration and production – got smoked, and midstream – the pipelines held up relatively better," said Stephen Kolano, chief investment officer at Integrated Partners in Waltham, Mass. "With commodities prices coming down, exploration and production are most sensitive to those prices." Pipelines are better insulated from that pressure as they are volume businesses – they transport and store oil and gas – while refiners are about to benefit from seasonal advantages as the summer driving season begins, he said. Attractive dividends "It's classically defined as nothing more than a towrope that moves product, be it oil, gas or water, from one place to the other," Philip Blancato, chief market strategist at Osaic, said of pipelines. He noted that the dividends help smooth out volatile moves in the stocks. Some of the pipeline companies are structured as master limited partnerships, which is part of the reason they can offer attractive dividend yields. While these partnerships aren't subject to federal income taxes, the limited partners – the investors – are on the hook for taxes on distributed income. That's different from the way C-corporations are taxed, where the business is subject to corporate income taxes and shareholders are responsible for taxes on dividends received. Those high dividends also come with tax complexities, where the partnership sends a Schedule K-1 to investors, detailing the income received. "It's nice to get a big dividend, but if you get the K-1 late, you'll probably have to file your taxes late," Blancato said. He highlighted Enterprise Products Partners . Shares are down about 2% in 2025 and have a dividend yield of 7%. Well liked The name is well liked on Wall Street, with 15 of 20 analysts rating it buy or strong buy and consensus price targets suggesting more than 21% upside, according to LSEG. Mizuho analyst Gabriel Moreen stuck with his outperform rating on Enterprise in late April, noting that while it posted a "weak" first quarter, it also shared "reassuring updates on 'big picture' themes." "We found it encouraging that management emphasized the outlook for Permian associated gas growth even if Permian crude [oil] production enters maintenance mode," he wrote. The analyst added that Enterprise still anticipates a "mid single-digit" cash flow improvement in 2026. Blancato also likes Western Midstream , once known as Western Gas, which pays a dividend yield of 9.9%. Shares are down nearly 4% in 2025. Most analysts covering the name rate it hold, but consensus price targets call for 10% upside, per LSEG. Even as these energy stocks offer solid dividends – limited partnerships in particular – investors should use them sparingly and understand they could see volatility in the stocks, Blancato said. "Think of this as a way to complement a core dividend strategy," he said. "Hold some bonds, some high-quality dividend payers. This is the sweetener in your coffee."