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CNBC
08-05-2025
- Business
- CNBC
This year is ugly for energy, but one income-producing corner of the market is holding up
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."
Yahoo
26-02-2025
- Business
- Yahoo
MLPs Resurge as Energy Infrastructure Demand Grows
Master limited partnership investments are experiencing renewed interest as the infrastructure supporting natural gas transportation becomes increasingly critical in today's evolving energy landscape. Over the past few years, the MLP sector has strengthened its financial position, according to Rene Reyna, head of thematic and specialty ETF strategy at Invesco. Companies have seen leverage come down and distribution coverage ratios start to improve, positioning the sector for renewed growth. For investors seeking income and inflation protection in a volatile market, MLPs represent a unique opportunity to access energy infrastructure without direct exposure to oil price swings, Reyna told With 19 MLP ETFs collectively managing more than $18 billion in assets, according to data, investors have multiple options to gain exposure to this specialized sector. What distinguishes MLPs from traditional energy stocks is their business model based on charging fees for transporting energy rather than profiting directly from energy prices, Reyna said. "What's unique about the space is [its] ability to generate fee-based revenue from transporting or storing energy products without being directly tied to oil and gas price volatility," Reyna explained. The most significant driver behind renewed interest in MLPs is the surge in energy demand from artificial intelligence infrastructure, Reyna said. "We're realizing that the amount of energy needed to support all the different models that are running for AI, large language models, they're just very energy intensive, and we don't have the infrastructure today to satisfy that demand," he said. This energy gap has created opportunities for natural gas infrastructure, with Reyna noting that MLPs are "serving as solutions in the near term" for the growing power needs of AI operations. This increasing demand, coupled with the improved financial health of MLPs, has enhanced their appeal as income-generating investments. Additional reading: Equity ETFs: An Intro to MLPs According to Reyna, Invesco's (IVZ) recently launched SteelPath MLP & Energy Infrastructure ETF (PIPE) currently offers yields around 5%, with distribution coverage ratios at historically strong levels—approximately twice the traditional safety margin for payouts. Beyond attractive yields, MLPs offer built-in inflation protection through their contract structures and tangible asset base, Reyna said. He emphasized the unique role MLPs can play for investors constructing diversified portfolios. "This can help satisfy a particular goal in a portfolio that you may not be able to get with some of the other sort of broader components of the energy value chain," he said. Ticker Fund Name Issuer AUM AMLP Alerian MLP ETF SS&C $10.73B EMLP First Trust North American Energy Infrastructure Fund First Trust $3.17B MLPX Global X MLP & Energy Infrastructure ETF Mirae Asset Global Investments Co., Ltd. $2.83B MLPA Global X MLP ETF Mirae Asset Global Investments Co., Ltd. $1.83B AMJB ALERIAN MLP INDEX ETNS DUE JANUARY 28, 2044 JPMorgan Chase $897.57M TPYP Tortoise North American Pipeline Fund Tortoise $722.05M ATMP Barclays ETN+ Select MLPETN Barclays $528.00M AMZA InfraCap MLP ETF Virtus Investment Partners $453.65M UMI USCF Midstream Energy Income Fund ETF Marygold $368.03M ENFR Alerian Energy Inrastructure ETF SS&C $290.21MPermalink | © Copyright 2025 All rights reserved Sign in to access your portfolio
