(Bloomberg) — With hefty dividends and ample liquidity from big institutional investors, shares of pipeline companies in North America are selling at the fastest pace since 2017, and bankers say the market remains open for more.
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After a slow start to 2023, sales of new and existing stocks in the energy subsector brought in $5.7 billion, the highest in six years, according to data compiled by Bloomberg. And the pipelines punch above their weight – with an additional $910 million added since Jan. 1, the total raised in the last 12 months represents nearly half of the $14.5 billion in total oil volume – and gas industry.
Investors have been eagerly buying the shares as companies offer large dividends to shareholders. This is particularly attractive when interest rates are above 5%.
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Canadian pipeline operator Enbridge Inc. led the way with a $3.4 billion offering in September, offering investors a mouth-watering 7.8% dividend yield. In 2024, Delek Logistics Partners LP – which offers an 11% dividend yield – raised $138 million.
“Any current deal would be well received,” Daniel Nowlan, vice chairman and managing director of equity markets at National Bank Financial, said of pipeline companies raising capital through equity offerings. “The market would definitely be open to any company of that size that can use its proceeds in good or even less exciting ways like paying down debt,” he said in an interview.
The combination of liquidity in the shares and high returns has made it easier to market the shares.
“The returns are certainly helpful. “There are a lot of ways for people to get returns,” Nowlan said. National Bank was part of the underwriting syndicate on the Enbridge deal, in which he said, “Many of the orders in this book were larger than some of the deals last year.”
The sale of existing shares was also positively received: a unit of Apache Corp. sold $441 million worth of shares in high-paying Kinetik Holdings Inc., and Global Infrastructure Partners sold shares of Hess Midstream LP for $331 million. Shares of both companies are trading above the offer price.
Momentum in pipeline stocks and partnership units is being driven by a wave of mergers and acquisitions, Truist Financial Corp. analyst Neal Dingmann wrote in a March 25 note. It’s an “exciting trend” that he expects to continue, as there are “hundreds of private equity midstream companies and several publicly traded companies that could be M&A targets in the coming quarters.”
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Of course, pipeline company stocks have lagged far behind oil and gas producers’ earnings, even when those big payouts are factored into total returns. The S&P 500 Energy Index is up over 17% in total returns year to date, while the closely watched Alerian MLP ETF is up nearly 14% in the same period.
Paul Baiocchi, chief ETF strategist at SS&C Technologies, the company that offers the Alerian MLP fund, thinks the gap should be smaller given how many stock sales were oversubscribed.
“I think there is a disconnect between the primary markets and the secondary markets,” he said, adding that the $717 million in net inflows into the fund over the past three years are “certainly good numbers, but by no means an avalanche.” “be. ”
Still, both the Alerian fund – which consists of pipeline and midstream partnerships and currently offers a dividend yield of 7.4% – and the energy index are performing well enough to beat the broader S&P 500.
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