Published Date: September 26, 2024
Author: HANetf
North American midstream continues to enjoy tailwinds, despite the volatility in US oil and natural gas prices that has weighed on other pockets of energy. Midstream companies are generating free cash flow independent of commodity prices thanks to fee-based business models. Excess cash flow supports ongoing dividend growth and buybacks.
Second quarter earnings reinforced a positive long-term outlook for US natural gas demand tied to exports and power generation, including for data centers (read more). Companies in MMLP’s underlying index are in conversations with data centers, and a few companies have recently announced high-return natural gas pipeline expansion projects to support power generation. Midstream stands to benefit from rising natural gas demand and the related production growth that will be needed, driving more volumes for natural gas infrastructure. Investors looking to play the long-term growth in US natural gas demand should consider midstream given healthy dividends and compelling growth opportunities with relative insulation to volatile natural gas prices.
The underlying index for the Midstream Energy Dividend ETF, AEDW, continued to outperform in August relative to broader US and European energy equities. AEDW was up 3.6% on a net-total-return basis in August, outperforming the Energy Select Sector Index (IXE) and the Stoxx Europe 600 Oil & Gas Index (SXEP), which fell -2.1% and -2.9%, respectively, on a total-return basis as US oil prices fell -5.6%.
Year-to-date through August, AEDW is up 23.0% on a net-total return basis, handily outpacing the IXE and SXEP’s total returns of 10.6% and 3.0%, respectively. AEDW is also noticeably outperforming the European majors, Shell, BP, Eni, and Total, so far this year. At the end of August, AEDW was yielding 6.14%.
AEDW constituents finished reporting earnings in August, with companies largely in-line with Wall Street forecasts and with some names beating estimates and raising guidance for the year. Four names grew their dividends sequentially for 2Q24, and companies spent over $1 billion combined on equity buybacks during 2Q24. As of 30 August, over 80% of AEDW by weighting has a buyback authorization in place.
Looking to the balance of the year, midstream companies are expected to maintain their focus on free cash flow and shareholder returns. Falling interest rates could make midstream’s yields more attractive to income investors, while November’s US election is not expected to have a material impact on the space. Energy commodities are likely to remain volatile as oil grapples with demand concerns and the potential unwind of production cuts from OPEC+, while US natural gas prices will be closely tied to the weather. With an uncertain outlook for commodities, the defensiveness of midstream’s fee-based business models and stable cash flows are likely to remain appealing.
Additional sources available upon request. Data as of 31/08/2024. Please remember that all performance figures are showing net data. Past performance is not indicative of future performance, and when you invest in ETFs your capital is at risk.
MPLX (MPLX, 9.86% Weight) reported 2Q24 results ahead of analyst expectations and repurchased $75 million in equity, bringing its total buyback spend through 1H24 to $150 million.
Enterprise Products Partners (EPD, 9.62% Weight) is acquiring Piñon Midstream for $950 million in an all-cash transaction that will increase EPD’s gathering and processing presence in the Permian Basin.
Energy Transfer (ET, 9.55% Weight) reported 2Q24 earnings results ahead of Wall Street forecasts and raised its full-year 2024 adjusted EBITDA guidance to $15.4 billion at the midpoint from $15.15 billion.
ONEOK (OKE, 7.64% Weight) agreed to acquire private Medallion Midstream and Global Infrastructure Partners’ interests in EnLink Midstream (ENLC, 0.75% Weight) for $3.3 billion. The transactions provide beneficial integration with OKE’s existing assets and enhance the company’s Permian footprint. The deals are expected to be immediately accretive to earnings per share and free cash flow per share. OKE reiterated plans to grow its dividend by 3-4% and execute on its $2 billion buyback authorization.
Pembina Pipeline Corporation (PPL CN, 3.79% Weight) reported 2Q24 earnings results ahead of consensus and raised its full-year adjusted EBITDA guidance to $4.275 billion at the midpoint from $4.175 billion.
Cheniere Energy (LNG, 1.26% Weight) repurchased $496 million in equity during the second quarter and increased its full-year adjusted EBITDA guidance to $5.9 billion at the midpoint from $5.75 billion, despite quarterly results that were slightly below consensus estimates.
Keyera Corp (KEY CN, 1.10% Weight) reported 2Q24 earnings results significantly ahead of consensus estimates and increased its dividend by 4%.
*Weightings as of 30/08/2024.
Midstream Energy Dividend ETF Performance As of 31/08/2024
MMLP (Fund)AMCCDN* (Index)1M1.99%1.99%3M6.89%6.87%6M10.15%10.07%YTD31.37%31.26%12M32.83%32.71%3Y94.75%95.18%Since Inception (27/07/2020)280.93%271.68%
Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2024
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs and ETCs, your capital is at risk.
This report was written by, and is the opinion of, VettaFi, the index provider of the Alerian Midstream Energy Dividend Index, the underlying index of MMLP. VettaFi does not issue, sponsor, endorse, sell, or promote MMLP.
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