2 Standout ETFs for Energy Dividend Investors

Barchart · 10/17 18:11

The allure of dividend investing is hard to beat. Its attractiveness lies in a steady source of income from investing in companies with a reliable track record of profitability and the experience gained by navigating through different business cycles. Notably, stocks from the energy sector are known for offering an attractive dividend yield - and many energy stocks look cheap right now, despite ongoing geopolitical tensions across Europe and the Middle East.

By adding quality energy dividend stocks to your portfolio, it can help provide a buffer against volatility shocks in the market when energy prices spike. And when the notoriously cyclical energy market is in a lull, regular dividend payments can provide steady passive income.

That said, picking individual energy stocks to buy can be an arduous task, requiring a heavy investment of time and expertise. That's where these two exchange-traded funds (ETFs) with an energy focus come into play. By investing primarily in pipeline operator stocks, they not only offer a healthy dividend yield; they also offer an additional layer of protection between investors and notoriously volatile commodity prices.

Midstream operators play a vital role in the transportation and storage of energy resources. However, due to their fee-based revenue model, midstream energy companies are less sensitive to energy prices. Unlike upstream companies that profit directly from selling oil (CLX24) and gas (NGX24), midstream companies earn revenue primarily through transportation, storage, and processing fees. These fees are often contracted for a fixed period, shielding them from fluctuations in commodity prices - effectively making these companies the rent-collecting “landlords” of the sector. This stability provides a more predictable income stream, making them less susceptible to the volatility of energy markets.

For investors in search of energy yield with a little less volatility, here's a closer look at the two ETFs.

#1. Global X MLP & Energy Infrastructure ETF

The Global X MLP & Energy Infrastructure ETF (MLPX) was founded in 2011 and belongs to the Global X Management family of funds. Global X Management is a leading provider of ETFs that focus on thematic and niche investment strategies.

The ETF is a fund designed to provide investors with exposure to master limited partnerships (MLPs) and energy infrastructure corporations. MLPs are publicly traded companies that operate in the energy sector, often involved in activities like pipeline transportation, storage, and processing. MLPX's assets under management (AUM) currently stands at about $2 billion.

With a strategy based on tracking the Solactive MLP & Energy Infrastructure Index, shares of the MLPX ETF are up 27.8% on a YTD basis. The ETF offers a healthy dividend yield of 4.36%, and has an expense ratio of 0.45%.

Currently, MLPX has an average daily volume of around 323,670 shares.

The ETF's top three holdings are Williams Companies (WMB) (9.51%), Oneok (OKE) (9.19%), and Enbridge (ENB) (8.82%).

#2. First Trust North American Energy Infrastructure Fund ETF

Launched in 2012, the First Trust North American Energy Infrastructure Fund (EMLP) is managed by First Trust Advisors L.P., an investment advisory firm based in the United States that specializes in offering various investment strategies. EMLP is actively managed, and invests primarily in energy infrastructure companies, including MLPs and corporations involved in the infrastructure of energy, which includes pipeline operators, utilities, and renewable energy firms in North America. The fund's AUM is currently at $2.81 billion.

Shares of the ETF are up 24.6% on a YTD basis. The ETF offers a dividend yield of 3.23%, while its expense ratio is a bit on the higher side, at 0.95%, given its actively managed strategy.

Average daily volume for the ETF is just under 129,000 shares.

EMLP's top three holdings are Enterprise Products Partners (EPD) (8.17%), Energy Transfer (ET) (6.80%), and Oneok (OKE) (5.26%).

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On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.