Midstream Equities: Company Cash Payouts Inflecting, Time for Another Look

Summary:

Favorable year-to-date 2019 midstream energy equity performance is reflecting improved sector appeal that, in our opinion, is being driven in part by a brightening outlook for rising midstream MLP distributions and C-Corp dividends to investors.
Historically, midstream MLP and C-Corp equity performance has tracked the trend in company cash payouts. With aggregate distributions and dividends projected to increase later this year, we anticipate the payout growth will once again prompt a renewal in investor confidence thereby supporting further positive midstream equity performance.
Evidence of shareholder-friendly capital allocation corroborates our view of improving investment merit, as the trend in debt reduction, increased self-funding of moderated capital expenditure programs, and increasing distribution and dividend coverage suggest that rising payouts are in the offing.
Only a few midstream MLPs remain encumbered by Incentive Distribution Rights (IDR) structures, suggesting the risk to aggregate sector cash flow payout is on the decline. We see the de-risking of cash payouts as a key driver of investor confidence and, in turn, investor inflows.

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