MLPs: What's In Store For The Sector After 43 Percent Drop YTD?

It has been a rough year for MLPs. The Alerian MLP Index (AMZ) has shed an alarming 43% year-to-date and now yields >10%, which is a record. There are several reasons investors have decided to dump out over the past 12 months, most of which are to do with the sliding price of oil. That said, MLP income streams are backed by “toll-like” assets, and fee-based cash flow is largely stable despite the challenging operating environment. Many long-term, fee-based contracts are even “take-or-pay”-like in nature, so the MLP receives payment regardless of whether or not volumes move across their systems.

According to a research note on the sector from Raymond James, even with a 34% drop in oil prices year-to-date, the average large-cap midstream...