High-Dividend-Paying Energy Fund May Offer a V-Shaped Recovery
By: Paul Dykewicz,
High-dividend-paying energy fund Global X MLP ETF (MLPA) invests in some of the largest, most liquid midstream energy master limited partnerships (MLPs) to give investment results that generally align with the price and yield performance, before fees and expenses, of the Solactive MLP Infrastructure Index.
Right now, the high-dividend-paying energy fund’s 22.5% dividend yield is inflated due to weak oil prices and the recent market decline, after its latest quarterly payout of $0.185. It is not clear whether this dividend is safe, but the fund can likely be expected to continue to pay a hefty dividend, as MLPs usually do.
The index fund focuses on transportation, storage and processing MLPs that often have less sensitivity to energy prices. Specifically, MLPA offers investors exposure to midstream MLPs in a C-corporation exchange-traded fund (ETF).
C-corporations, unlike many exchange-traded funds (ETFs), pay taxes at the fund level. However, MLPs typically pay high yields to investors because they do not pay corporate income taxes. Plus, MLPA’s expense ratio of 0.46% is about 24% lower than the industry average.
MLPA has $450.78 million in assets under management. Its next distribution date is May 7, 2020. MLPA’s share price dipped in late March but it has been rising lately after President Trump intervened in an oil production dispute between Russia and Saudi Arabia to lift oil prices and reduce output after a severe plunge in oil prices that began to imperil the survival of certain energy companies.
This midstream energy ETF allocates 76.57% of its total assets to its top 10 holdings. MLPA’s top five holdings currently are Enterprise Products Partners LP (EPD), 12.52%; Magellan Midstream Partners LP (MMP), 11.26%; MPLX LP Partnership Units (MPLX), 7.80%; Cheniere Energy Partners LP (CQP) 7.59%; and Energy Transfer LP (ET), 7.38%.
In sum, the fund is aimed at providing exposure to midstream energy holdings that are on the rise with a recent upward move in oil prices. For investors looking to gain exposure to the energy sector, the ETF offers a chance to align with the largest and most liquid midstream MLPs.
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