Excellent Dividend Growth from Energy Midstream

Energy midstream stocks, including master limited partnerships (MLPs), have been an excellent option for investors seeking yield and dividend growth. With the second-quarter earnings season behind us, it’s a good time to see how the sector is doing with dividends.

Alerian Energy, now part of VettaFi, publishes indexes that track energy midstream and infrastructure assets. The company has three widely followed indexes:

• The Alerian MLP Index (AMZ) tracks midstream companies organized as MLPs. The index currently comprises 17 components, with an average market capitalization of $16 billion.
• The Alerian MLP Infrastructure Index (AMZI) tracks 13 component companies with an average market cap of $20.7 billion.
• The Alerian Midstream Energy Index (AMNA) encompasses both MLPs and midstream corporations within the index. The index comprises 26 component companies with an average market capitalization of $26.8 billion.

Based on the results of the second-quarter dividend announcements, VettaFi produced this graphic:

Green indicates dividend growth over the last year. Purple represents unchanged dividends. There have been zero dividend reductions in the previous four quarters.

The percentages are by market cap. Looking at AMNA, which is the most inclusive of the three indexes, by market capitalization, 97% of energy midstream companies increased their dividends over the last year.

When comparing MLPs to midstream corporations, MLPs tend to have higher current yields and have been growing dividends at a higher rate compared to their corporate counterparts.

The InfraCap MLP ETF (AMZA) is my long-time favorite midstream investment. AMZA pays monthly dividends, yields 7.8%, and its dividend has increased by 8% to 9% per year.