The midstream energy sector is poised to benefit from the Covid-19 vaccine-fuelled increase in oil and energy valuations, according to Stacey Morris, director of research at Alerian.
The company’s Alerian Midstream Energy Dividend UCITS ETF (LON:MMLP), which was launched last year in partnership with exchange-traded product specialist HANetf, is up over 9% since the start of 2021.
“The recent strong midstream performance has coincided with improving commodity prices, a reflation trade, and progress with COVID-19 vaccinations,” said Morris.
Looking ahead to the rest of 2021, an improved outlook for the global economy and oil demand will clearly benefit the energy market, including midstream energy infrastructure, she said.
“Energy has been one of the sectors most negatively impacted by the pandemic, and a successful vaccine roll-out would be constructive for a recovery in oil demand this year.”
Midstream energy companies are those in the oil production process that sit between upstream and downstream, with activities including storage, processing and transportation, like operators of oil tankers, pipelines and storage facilities.
Midstream companies in particular are well positioned to generate meaningful free cash flow this year, Morris said, with many firms expected to have excess cash even after making generous dividend payments and starting buyback programs towards the end of 2020.
This could be an added tailwind for midstream equities in 2021.
“Midstream energy infrastructure is well positioned to provide attractive income to investors with the potential for total return as well.”
The Alerican ETF tracks the Alerian Midstream Energy Dividend Index (AEDWN), which is down 19.9% over the last 12 months but with its dividend focus the ETF currently yielding well over 8%.