MLP Yields, Valuations Remain Attractive

The Alerian MLP ETF (AMLP) is outperforming the S&P 500 in 2025, driven by attractive MLP valuations and a focus on distribution growth, with the Alerian MLP Infrastructure Index (AMZI) yielding 7.61% at the end of May. Solid free cash flow generation is fueling distribution growth and equity repurchases, with AMLP's underlying index boasting a trailing 12-month free cash flow yield above 7%. Despite market volatility, midstream MLPs offer defensiveness due to their fee-based models and stable cash flows, further supported by above-average yields and attractive valuations, with a forward EV/EBITDA multiple of 8.68x.

Analysis

The Alerian MLP ETF (AMLP) is demonstrating strong performance in 2025, outperforming the S&P 500, without its underlying Master Limited Partnership (MLP) valuations becoming overextended. The Alerian MLP Infrastructure Index (AMZI), which AMLP tracks, reported a yield of 7.61% at the end of May, slightly above its three-year average of 7.45%. This attractive yield is supported by a focus on distribution growth, evidenced by six AMLP holdings increasing sequential payouts in Q1 2025 and no distribution cuts among constituents since July 2021. Further bolstering shareholder returns, two AMLP holdings executed a combined $160 million in equity repurchases during the recent quarter. The financial health of these entities is underscored by robust free cash flow generation; AMZI's trailing 12-month free cash flow yield exceeded 7% at May's end, more than double that of the S&P 500. Despite market pressures in April, MLP forward estimates have remained stable, resulting in AMZI's forward EV/EBITDA multiple of 8.68x, which is below its three-year average of 8.77x, suggesting MLPs are not expensively valued despite recent strong returns. The sector's appeal is further enhanced by the defensive characteristics of midstream MLPs, whose fee-based operational models provide stable cash flows less susceptible to commodity price volatility. It is noted that VettaFi, the index provider for AMLP, receives a licensing fee but is not involved in the issuance, sponsorship, endorsement, or trading of the ETF.

Key Decisions for Investors

• Investors seeking income should consider the attractive yields offered by MLPs, supported by consistent distribution growth and strong free cash flow generation.
• The current valuation of MLPs, as indicated by AMZI's forward EV/EBITDA multiple remaining below its historical average and a free cash flow yield more than double the S&P 500, suggests a potentially favorable entry point despite recent outperformance.
• Given their fee-based models and stable cash flows, MLPs may offer a defensive allocation within portfolios, particularly for investors concerned about broader market and energy price volatility.