Midstream Energy Monthly Report | May
Learn more about the Midstream energy ETF
- 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.
- Midstream earnings season got off to a solid
start as companies largely exceeded expectations, with multiple names raising
2021 financial guidance.
Midstream Energy Dividend Index (AEDW)
Past performance is no guarantee
of future performance.
*12-month figures based on 30.04.20
Index yield annualizes the most recent dividend announcement for each
constituent and takes into account current index weightings.
- April: AEDW 5.96%
- WTI oil prices increased 7.47% in April.
The current yield for
AEDW is 7.52%*, which is in line with the five-year average of 7.57%.
What has driven this performance?
The Midstream energy ETF gained in April as companies
began to announce their quarterly dividends and initial 1Q21 earnings results
exceeded expectations. Some of the large names reporting in April beat
consensus expectations and raised financial guidance for the year. Oil prices saw a sustained upward trend as demand
prospects for the year improved on a stronger economic outlook for 2021. Energy
equities were flat to down despite the gains in oil prices, largely
underperforming ahead of earnings announcements. The Energy Select Sector Index
(IXE) gained 0.69% in April on a total-return basis, noticeably lagging the 5.96%
increase in AEDW for the month. Similarly, AEDW significantly outperformed
the Stoxx Europe 600 Oil and Gas Index (SXEP), which was down 3.38%, on a
total-return basis for the month of April. Even with sizable gains since
November, AEDW was trading at 10.1x consensus 2022 EBITDA estimates at the end
of April compared to a historical (ten-year) average EV/EBITDA multiple for
midstream of ~12.0x.
Current/past performance is no guarantee of future
performance* as of 30.04.21
Source of all data: Alerian, Bloomberg
MMLP Performance Table
As of 28.02.21
Alerian Midstream Energy Dividend UCITS ETF
Alerian Midstream Energy Dividend Index (NTR)
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 a 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. Source: Alerian, HANetf. Data as of 30/04/21.
were largely steady with some large names providing growth.
ESW Q/Q Dividends: Steady Trend Continues
For illustrative purposes only. Past
performance is no guarantee of future performance.
Weightings as of April 30, 2021.
IPL CN, KEY CN, and PPL CN pay monthly dividends. For these names, dividends
for April 2021 were compared with January 2021.
Source: Alerian, Company Reports as of April 30, 2021
AEDW constituents largely maintained their payouts for 1Q21 (those
dividends paid in 2Q21 based on 1Q21 performance), with some of the largest
names in the index by weighting announcing growth. In total, five constituents
raised their 1Q21 dividend, including three of the top ten constituents—TC
Energy Corporation (TRP CN) by 7.4%, Kinder Morgan (KMI) by 3%, and Cheniere
Energy Partners LP (CQP) by 0.7%. These three constituents account for 23.0%
of the index weighting. Western Midstream Partners LP (WES), a 1.9%
weight, and Gibson Energy Inc (GEI CN), a 0.6% weight, also grew their 1Q21
dividends by 1.3% and 2.9% respectively. TRP CN, KMI, and GEI CN had previously
guided to dividend increases. Antero Midstream (AM), a 2.1% weight in
AEDW and the only constituent to reduce its dividend, saw a 26.8% reduction consistent
with the company’s plans announced in February. Nonetheless, recent dividend increases
help add confidence to midstream income even as yields
remain above other income-oriented investment options. All weightings are as of
30 April. Past performance is no guarantee of future performance. Source:
Kinder Morgan (KMI) reported 1Q21 results that exceeded
consensus EBITDA expectations by $1 billion as positive pricing impacts from
extreme winter weather drove a huge beat. KMI raised 2021 EBITDA guidance by
$820 million at the midpoint and also delivered a 3% dividend increase
consistent with past guidance.
ONEOK (OKE) reported strong results, beating EBITDA estimates by $89
million driven by pricing benefits from the winter storm and demand improvements
in the base business. OKE raised the midpoint of 2021 EBITDA guidance by $150
million or 5% to include tailwinds from a stronger macro energy environment along
with the higher marketing profits from the winter storm.
Private Equity Transactions Add
Confidence to Outlook. Private equity
transactions have served as a catalyst for the space in the past, providing
important valuation markers and validation for the multi-year outlook for the
midstream business model. While deal activity was muted amid the volatile
backdrop in 2020, there have been a few transactions in 2021 as the macro
environment has steadied. In early April Sempra Energy (SRE, not in AEDW)
announced the sale of a 20% stake in Sempra Infrastructure Partners to KKR for
In late April, AEDW constituent Magellan Midstream Partners (MMP) announced the
sale of half of its interest in the Pasadena Marine Terminal joint venture to
an undisclosed buyer for $270 million with potential use of proceeds including
buybacks. These transactions help
highlight the long-term value of midstream assets and the stable cash flows
generated by these assets. Read More
After the severe oil demand destruction associated with
COVID-19 in 2020, the economic outlook for 2021 is becoming increasingly
positive, supporting upward revisions to oil demand forecasts. Specifically,
the International Energy Agency (IEA) raised its forecast for 2021 oil demand
by 230,000 barrels per day in April citing recent increases to global GDP growth
estimates for 2021 and 2022 by the International Monetary Fund.
Energy, including midstream energy infrastructure, clearly stands to benefit
from an improved outlook for the global economy and oil demand. In the near-term, tightening oil supplies have boosted oil prices this
year (WTI oil up over 31% YTD through April), which has helped make
energy the best-performing sector in 2021 despite energy broadly trading flat
to down this month, even as midstream notched notable gains. The reflation
trade fuelled by expectations for economic growth and inflation concerns has also
benefitted energy, including midstream. While
these macro tailwinds should be broadly supportive, midstream energy
infrastructure stands out from the rest of the energy sector for its generous
income, free cash flow potential, and buybacks. Midstream yields remain attractive with recent
dividend increases highlighting the favourable 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 after dividends. 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 well.
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