Midstream Energy Monthly Report | March
- At the end of February, the underlying index for
the Alerian Midstream Energy ETF (MMLP), AEDW, was yielding 8.59%.
Notably, investment-grade companies represented 83.0% of the index by
- AEDW constituents
largely maintained their recent dividends at prior levels, but some of the
largest names in the index by weighting announced increases, including three of
the top ten constituents by weighting. Increases and positive guidance help add
confidence to midstream income even as yields remain above the five-year
- The announcements of a natural gas pipeline
asset sale at an attractive multiple and a takeout offer for an AEDW
constituent at a premium helped highlight the value proposition of the
Midstream Energy Dividend Index (AEDW)
Past performance is no guarantee
of future performance.
*12-month figures based on 29.02.20
Index yield annualizes the most recent dividend announcement for each
constituent and takes into account current index weightings.
- February: AEDW 5.63%
- WTI oil prices increased 17.82% in February.
The current yield for AEDW is 8.59%*,
which is elevated relative to the five-year average of 7.59%.
What has driven this
Midstream energy ETF gained in February as companies announced 4Q results,
dividends, and forward financial guidance. Oil prices saw a strong rebound as
weather-related supply disruptions in the US added to existing OPEC+ cuts and
an incremental 1 million barrel per day cut from Saudi Arabia (for February and
March) to tighten the market. Energy equities, including midstream, also
benefitted from the continuing reflation trade, which remains in focus given positive expectations for economic growth and
ongoing inflation concerns with bond yields rising.
performed relatively in line with the Stoxx Europe 600 Oil and Gas Index
(SXEP), which was up 6.16%, on a total-return basis for the month of February.
sizable gains since November, AEDW was trading at 9.57x consensus 2022 EBITDA
estimates compared to a historical (ten-year) average EV/EBITDA multiple for
midstream of ~12x.
performance is no guarantee of future performance
*Source of all data: Alerian/ Bloomberg. Data as of 28.2.21.
MMLP Performance Table
As of 28.02.21
Alerian Midstream Energy Dividend UCITS ETF
Midstream Energy Dividend Index (NTR)
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. Source: Alerian, HANetf. Data as of 28/02/2021.
Dividends steady with some large names providing growth.
For illustrative purposes
only. Past performance is no guarantee of future performance.
AEDW constituents largely
maintained their payouts for 4Q20 (those dividends paid in 1Q21 based on 4Q20
performance), with some of the largest names in the index by weighting
announcing growth. Three of the top ten constituents announced dividend
increases – Enterprise Products Partners (EPD) by 1.1%, Enbridge (ENB CN) by
3.1%, and Williams (WMB) by 2.5%. A few constituents have declared or announced
plans to increase their dividends for 1Q21. TC Energy (TRP CN) declared a 1Q21
dividend of $0.87 per share payable in April, representing a 7.4% increase. Similarly,
Gibson Energy (GEI CN) announced a 2.9% increase for its 1Q21 dividend. Kinder
Morgan (KMI) plans to increase its dividend by 3% for 2021 while also targeting
buybacks of up to $450 million. KMI and TRP are top ten constituents of AEDW by
weighting. NGL Energy Partners (NGL), a 0.16% weight in AEDW, announced in
early February that it was suspending its dividend and was the only cut for
4Q20. Antero Midstream (AM), a 2.1% weight in AEDW, announced plans to reduce
its 2021 dividend to $0.90 per share annualized – a 27% reduction for 1Q21 – to
internally fund organic growth projects and maintain a strong balance sheet. While
there are some exceptions, recent dividend increases and largely positive
guidance help add confidence to midstream income even as yields remain above
the five-year average.
Source of all data: Alerian. Read more.
Asset sale and takeout
offer help highlight value in midstream assets.
Kinder Morgan (KMI) and Brookfield Infrastructure Partners (BIP is not in
AEDW) announced the sale of a 25% interest in Natural Gas Pipeline Company of
America to ArcLight Capital Partners for $830 million, implying a 11.2x multiple to 2020 EBITDA. The 11.2x
multiple for a minority stake in natural gas infrastructure helps highlight the
long-term value of these assets. KMI was trading at 9.80x 2020 EBITDA as of
February 28 and 9.90x 2022 EBITDA. The AEDW index was trading at 9.57x 2022
EBITDA estimates at the end of February with companies primarily focused on
pipeline transportation of natural gas (similar to the assets being sold) representing
42.24% of the index by weighting.
Inter Pipeline (IPL CN) received an unsolicited bid from Brookfield
Infrastructure Partners (BIP, not in AEDW) in February. IPL is a Canadian energy infrastructure company
focused on oil sands transportation, NGL processing, conventional oil
pipelines, and liquids storage. IPL is also constructing a major $4-billion
petrochemical complex. The offer price
represented a 23% premium to the closing price of IPL shares prior to the
announcement and a 28% premium to the 30-day volume-weighted average price. Brookfield Infrastructure is IPL’s largest holder
with a total economic interest of 19.6%. IPL has formed a special committee,
which will review the offer. Broadly, the takeout offer at a notable premium
helps highlight the continued value in midstream assets.
After the severe demand
destruction associated with COVID-19 in 2020, energy, including midstream
energy infrastructure, clearly stands to benefit from an improved outlook for
the global economy and oil demand as vaccine deployment continues. In the
near-term, tightening oil supplies have boosted oil prices this year (WTI oil
up over 25% YTD through February), which has helped make energy the
best-performing sector this year. Furthermore, the reflation trade fuelled by
expectations for economic growth and inflation concerns has also benefitted
energy, including midstream. While midstream should benefit from these macro
tailwinds, energy infrastructure stands out from the rest of the energy sector
for its attractive income, free cash flow potential, and buybacks. Midstream
yields remain attractive with recent dividend increases and guidance for growth
highlighting the favorable outlook for income from this space. Regardless of
the commodity price environment, midstream companies are poised to generate
meaningful free cash flow in 2021, with many names expected to have excess cash,
even after potential dividend payments. To this end, several companies initiated
buyback programs in 2020, which could be an added tailwind for midstream
equities in 2021. Approximately half of AEDW by weighting has buyback
authorizations in place. Midstream energy infrastructure is well positioned to
provide attractive income to investors with the potential for total return as
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