This midstream MLP (Master Limited Partnership) ETF has a current annual yield of 35.22%, paid monthly. Its top five holdings include: MPLX LP Partnership Units (MPLX, 18.22%); Enterprise Products Partners LP (EPD, 16.38%); Energy Transfer LP (ET, 15.81%); NuStar Energy LP (NS, 15.52%); and DCP Midstream LP (DCP, 12.36%).
InfraCap MLP ETF (AMZA)
From The Dividend Hunter
InfraCap MLP ETF launched in October 2014, so the timing could not have been worse. The investment strategy for AMZA was to boost returns over the Alerian MLP Infrastructure Index (AMZI) by actively managing the AMZI components for investment potential.
The fund also used up to 30% leverage and sold call options to boost income. In a level to rising market, the AMZA strategy would have produced significant over-performance compared to the AMZI. In the declining MLP market from IPO until late 2019, AMZA underperformed. But if from December 2019 into January 2020, AMZA performed strongly in an upmarket.
When the pandemic hit, management was early to eliminate the leverage in AMZA. The deleveraging produced losses but kept the fund from complete liquidation. Several leveraged MLP closed-end funds went to zero value during the crash.
To stay eligible for stock exchange listing, AMZA did a ten-for-one reverse stock split. The dividend was reduced to a sustainable level, following the changes triggered by the crash. Which leads us to the present.
Currently, AMZA covers its dividend rate with distributions earned by its portfolio. The fund owns the largest, most stable MLPs tracked by the AMZI. From now on, the AMZA share price should more closely track the AMZI sector.
My thoughts and expectations are as follows: The midstream sector is stable financially and will grow nicely as we move out of the pandemic era. Companies are committed to supporting distributions, and growth plans are conservative. The current high-teens yield closely matches the yields on large MLPs. At some point, the investing public will be attracted to earning 15% to 20% and start again to buy into the midstream sector.
I don’t see any reason why the sector and the AMZA share price can’t double or more from here. Possibly a lot more. To drive average MLP yields to 6% requires a tripling of market values. Hopefully, I, along with everyone in the MLP space, have learned from the past half-decade of pain. Energy midstream provides essential services to the overall economy.
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, November 2020