Pipeline Stock Dividends Are Rising as Oil Prices Surge. Here’s How to Play It.

Sanctions on Russia are upending global energy markets, pushing up crude oil above $100 a barrel and sending U.S. gasoline prices to an average $4.30 a gallon, up nearly 50% in the last year.

It has also turned the energy sector into a superstar this year. Of the 11 sectors in the

S&P 500, energy has been a standout, blowing past the rest of the market with a 32% gain, against a 7% decline in the S&P 500.

Energy infrastructure stocks, including pipelines, transportation, storage, and logistics companies, have returned an average 16.6%, according to the Alerian Midstream Energy Index. That might not look great compared with the broader energy sector.

But infrastructure companies aren’t as volatile or closely correlated to crude oil prices as exploration-and-production, or E&P, companies. Infrastructure companies also tend to pay higher dividends, yielding an average 5.6% against 4.3% for the S&P 500 energy sector.

Moreover, the midstream sector has been through a rough patch and now looks financially healthier with many companies reducing debt, focusing on free cash flow, and rebasing their dividends—following payout cuts in 2021 amid an energy downturn.

“Geopolitical developments this year have reinforced our positive outlook on the sector,” said Mizuho analyst Gabriel Moreen in an interview. “Commodity markets have tightened, cash flow improvements have been more rapid than we’d expected, and management teams are making the right strategic moves around capital—with distribution increases, share buybacks, and deleveraging.”

High crude oil prices and dwindling supplies from Russia could also be an incentive for more domestic production, benefiting pipelines, storage, logistics, and other “midstream” segments.

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