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Given the unusual degree of turbulence energy markets have experienced in the last few years, the importance of the reinvestment of distributions (i.e., dividends) by midstream master limited partnerships (MLPs) has been particularly pronounced.

Since 1996, almost 80% of the Alerian MLP Index’s (AMZ) 11.5% annualized total return has been derived from receiving and reinvesting distributions. Even without reinvestment, the AMZ’s annualized total return would have been 9.4% since 1996, with 60% of this return delivered through distributions.

Due to extreme energy-market volatility, the average price performance of even the top 10 performing MLPs in the AMZ has been negative for the period July 2014-April 2018. However, after accounting for distributions – whether reinvested or not – the average performance of these MLPs is positive for the period: 3% total return without reinvestment of dividends, and 7% total return when dividends are reinvested.1

In our view, the distribution capture opportunity for the asset class currently sits materially above the broader market or competing equity-yielding asset classes. The AMZ’s current indicative yield is 8.51%, compared with approximately 1.9% for the S&P 500 Index.

As we have stated previously, while energy market doldrums may linger, we remain confident that a return to a more steady energy market is manifesting itself. We further believe that the energy infrastructure landscape is attractively positioned, with appealing growth potential and even more attractive valuations. As normalcy returns, we believe market participants will return their focus to the power that dividends have on long-term total return.

 
  1. ^Source: Alerian MLP Index, April 2018. Includes the top 10 performing companies in the Alerian MLP Index, as of 4/30/18, that were also included in the index in July 2014. Past performance does not guarantee future results.