Better Dividends Plus Buybacks Create Rare Wealth Compounding

Since around 2020, energy midstream companies have become more aggressive with stock buybacks. VettaFi ETF Trends reported a record level of buybacks by companies in the sector in the third quarter of this year.

As a baseline, the Alerian Midstream Energy Index (AMNA) has 28 component companies, with a total market cap of $760 billion. For the 2025 third quarter, eight AMNA companies spent a total of $1.59 billion on share repurchases. Nine companies bought $956 million of equity during the 2025 second quarter. The $1.59 billion eclipsed the record $1.49 billion spent in the 2024 first quarter.

Eighteen companies, representing 75% of the AMNA market cap, have buyback authorizations in place.

Here are the top spenders buying back their own shares during the third quarter:

Cheniere Energy (LNG): purchased $1.02 billion worth of common shares

Targa Resources (TRGP): repurchased $156 million of shares

MPLX (MPLX): spent $100 million on shares

Enterprise Product Partners (EPD): bought $80 million of the company’s shares

What do share buybacks mean for investors in these companies? The management team likes to call it “returning cash to shareholders.” I find that to be a misnomer. Shareholders of the stocks don’t get cash. The investors who had the shares repurchased no longer have them.

Buybacks reduce a company’s shares outstanding, thereby increasing earnings per share. It’s a way to drive EPS growth mechanically. Investors want to own shares of growing companies. A steadily rising EPS should lead to a higher share price.

However, as we know, share prices can go down as well as up. Energy midstream, as represented by the AMNA index, moves up and down with investors’ views of the energy sector.

I like to see companies that combine share buybacks with a corresponding increase in their dividends, which are real cash returns to investors. Growing dividends reward investors as earnings per share grow.

Of the stocks listed above, MLPX is an attractive choice. The company has a five-year annual dividend growth rate of 7.5%; the shares currently yield 8.0%.