Midstream energy sector likely to continue outperforming - VettaFi
London, UK
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February 08, 2024 06:19 AM Eastern Standard Time
VettaFi Head of Energy Research Stacey Morris provides an optimistic outlook for the midstream energy sector despite a challenging start to 2024.
Morris highlighted that the sector continues to experience gains, building on the positive momentum from 2023. She noted that in January, the Alerian Midstream Energy Dividend UCITS ETF, an underlying index for midstream energy, saw a 1.5% increase, outperforming both the US and European energy benchmarks. This growth is attributed to positive dividend announcements, mergers and acquisitions activity, and promising initial fourth-quarter results with a constructive outlook for 2024.
Morris emphasised the strong outlook for dividend growth within the midstream space, where nearly half of the index by weighting announced sequential dividend increases from Q3 to Q4. High-profile companies like Enterprise Products Partners and Williams Companies reported significant dividend increases, indicating a trend of robust dividend growth. She also mentioned the sector's attractiveness due to its yield of 7.1% as of February 5, with over 92% of the index by weighting being investment-grade, reflecting the quality and free cash flow-generating capacity of these companies.
Looking ahead, Morris expects the current earnings season to continue showing positive results and a constructive outlook for the year. She anticipates modest EBITDA growth and a focus on returning excess cash to investors through buybacks and dividend growth. Overall, Morris remains very constructive on the midstream space for 2024, citing its ability to provide stable cash flows and attractive income amidst volatility in oil and gas prices.
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