In US dollar terms, the Solactive Canadian Midstream Oil & Gas Index has outperformed the Alerian MLP Index by more than 15 percentage points so far in 2017 and almost 25 percentage points since the energy down-cycle began in mid-2014.
Nine of the 10 Canadian midstream companies in our International Coverage Universe have increased their dividends at least twice since oil prices peaked in 2015. The lone exception, Kinder Morgan Canada (TSX: KML), completed its initial public offering on May 30, 2017.
Equally important, none of these names have cut their payouts since energy prices started to break down in mid-2014—a remarkable feat when you consider the pain that Canadian oil-field service companies and producers have suffered relative to their US peers.
Cross-border transportation constraints, coupled with surging US energy production, have ensured that Canadian upstream operators’ price realizations on crude oil, natural gas and natural gas liquids come at a significant discount to prominent benchmarks.
The group’s outperformance and steadily growing dividends stand in marked contrast to the turmoil afflicting US midstream master limited partnerships (MLP), where many prominent names such as Energy Transfer Partners LP (NYSE: ETP), Plains All-American Pipeline LP (NYSE: PAA) and Williams Partners LP (NYSE: WPZ) have slashed their distributions at least once.
All told, the 25 companies in the Alerian MLP Infrastructure Index have reduced their aggregate quarterly distribution by 14.5 percent from year-ago levels and almost one-third since early 2016. These payout cuts have reduced investors’ income streams and resulted in sharp selloffs in their stock holdings. Even Enterprise Products Partners LP (NYSE: EPD) and other higher-quality names have underperformed, suffering for the sins of their profligate counterparts.
We explore why Canadian midstream stocks have outperformed the Alerian MLP Index and the aspects of their business model that could provide a model for their counterparts south of the border.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Feb. 25, 2021
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