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Given the decline in yields and the prospect of lower interest rates, investors are in search of juicy returns. While utilities stocks, which pay outsized yields, generally fit in this category, energy stocks have unexpectedly taken a hot spot this year. The ultra-popular Energy Select SPDR ETF (XLE - Free Report) currently pays about 3.4% in dividend yield, beating the 3.1% yield of the Utilities Select SPDR ETF (XLU - Free Report) for the second time in a decade (see: all the Energy ETFs here).
The popularity of energy ETFs is surprising, especially after their lackluster performance over the past year, which in fact made the stocks cheap and tempting for investors. In fact, XLE has lost more than 13% while the XLU has gained more than 18% in the trailing year. Since yield is calculated by dividing the dividend per share by the stock price, yields of energy stocks moved higher. In particular, energy pipelines and infrastructure pay relatively safe yields of 4%-6% or more.
Energy sector fundamentals also look appealing. Though global growth concerns will weigh on oil demand, tight supply conditions driven by Iran and Venezuela sanctions, Middle East tensions and declining OPEC production drive confidence about the sector.
Additionally, OPEC and some non-OPEC producers including Russia have extended their oil supply cut pact until March 2020 to tackle global supply glut and rebalance the oil market. Russia also joined Saudi Arabia to extend existing output cuts of 1.2 million barrels per day, or 1.2% of global demand, until December 2019 or March 2020. All these factors bode well for the sector (read: OPEC Output Cut Extended to 2020: Will These ETFs Gain?).
Given the bargain prices as well as encouraging trends, investors are cashing in on the high dividend yields in the energy sector. As such, we have highlighted five ETFs that are yielding more than XLE.
American Energy Independence ETF (USAI - Free Report) – Yield: 5.68%
This ETF provides exposure to the infrastructure that moves the growing energy supplies to market by tracking the American Energy Independence Index. It seeks to keep its holdings of MLPs below the 25% threshold, since it seeks to be a Regulated Investment Company or RIC-compliant and therefore not subject to U.S. Federal corporate income tax. The fund holds 31 stocks in its basket with none accounting for more than 7.5% of the assets. It has amassed $11 million in its asset base and charges 75 bps in annual fees.
This ETN is linked to the performance of the NYSE Pickens Core Midstream Index, charging investors 85 bps in fees per year. It has accumulated $22.5 million in its asset base with each accounting for less than 9% share (read: 5 ETFs & Stocks Riding High on Oil Rebound).
This fund seeks to follow the Alerian Midstream Energy Select Index, a composite of North American midstream energy infrastructure companies, including corporations and master limited partnerships (MLPs), engaged in pipeline transportation, storage, and processing of energy commodities. It holds 39 securities in its basket with each accounting for less than 9.4% of the assets. The product has amassed $65.3 million in its asset base while charging 65 bps in annual fees.
Tortoise North American Pipeline Fund (TPYP - Free Report) – Yield: 4.03%
This fund offers exposure to the sizable pipeline network of one of the world’s largest consumers of energy by tracking the Tortoise North American Pipeline Index. Holding 67 stocks in its basket, it is widely diversified across security with each accounting for no more than 7.7% share. The ETF has AUM of $353.3 million and charges 40 bps in annual fees (read: Is an Oil ETF Rally on Middle East Tensions Sustainable?).
iShares Global Energy ETF (IXC - Free Report) – Yield: 3.82%
This ETF follows the S&P Global 1200 Energy Sector Index, giving investors exposure to global companies that produce and distribute oil and gas. It is relatively popular and liquid with AUM of $1.3 billion and charges 47 bps in annual fees. The product holds 66 stocks in its basket with heavy exposure to Exxon Mobil XOM and Chevron CVX.
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5 Overlooked Energy ETFs Yielding More Than XLE
Given the decline in yields and the prospect of lower interest rates, investors are in search of juicy returns. While utilities stocks, which pay outsized yields, generally fit in this category, energy stocks have unexpectedly taken a hot spot this year. The ultra-popular Energy Select SPDR ETF (XLE - Free Report) currently pays about 3.4% in dividend yield, beating the 3.1% yield of the Utilities Select SPDR ETF (XLU - Free Report) for the second time in a decade (see: all the Energy ETFs here).
The popularity of energy ETFs is surprising, especially after their lackluster performance over the past year, which in fact made the stocks cheap and tempting for investors. In fact, XLE has lost more than 13% while the XLU has gained more than 18% in the trailing year. Since yield is calculated by dividing the dividend per share by the stock price, yields of energy stocks moved higher. In particular, energy pipelines and infrastructure pay relatively safe yields of 4%-6% or more.
Energy sector fundamentals also look appealing. Though global growth concerns will weigh on oil demand, tight supply conditions driven by Iran and Venezuela sanctions, Middle East tensions and declining OPEC production drive confidence about the sector.
Additionally, OPEC and some non-OPEC producers including Russia have extended their oil supply cut pact until March 2020 to tackle global supply glut and rebalance the oil market. Russia also joined Saudi Arabia to extend existing output cuts of 1.2 million barrels per day, or 1.2% of global demand, until December 2019 or March 2020. All these factors bode well for the sector (read: OPEC Output Cut Extended to 2020: Will These ETFs Gain?).
Given the bargain prices as well as encouraging trends, investors are cashing in on the high dividend yields in the energy sector. As such, we have highlighted five ETFs that are yielding more than XLE.
American Energy Independence ETF (USAI - Free Report) – Yield: 5.68%
This ETF provides exposure to the infrastructure that moves the growing energy supplies to market by tracking the American Energy Independence Index. It seeks to keep its holdings of MLPs below the 25% threshold, since it seeks to be a Regulated Investment Company or RIC-compliant and therefore not subject to U.S. Federal corporate income tax. The fund holds 31 stocks in its basket with none accounting for more than 7.5% of the assets. It has amassed $11 million in its asset base and charges 75 bps in annual fees.
UBS ETRACS NYSE Pickens Core Midstream Index ETN – Yield: 5.31%
This ETN is linked to the performance of the NYSE Pickens Core Midstream Index, charging investors 85 bps in fees per year. It has accumulated $22.5 million in its asset base with each accounting for less than 9% share (read: 5 ETFs & Stocks Riding High on Oil Rebound).
Alerian Energy Infrastructure ETF (ENFR - Free Report) – Yield: 4.14%
This fund seeks to follow the Alerian Midstream Energy Select Index, a composite of North American midstream energy infrastructure companies, including corporations and master limited partnerships (MLPs), engaged in pipeline transportation, storage, and processing of energy commodities. It holds 39 securities in its basket with each accounting for less than 9.4% of the assets. The product has amassed $65.3 million in its asset base while charging 65 bps in annual fees.
Tortoise North American Pipeline Fund (TPYP - Free Report) – Yield: 4.03%
This fund offers exposure to the sizable pipeline network of one of the world’s largest consumers of energy by tracking the Tortoise North American Pipeline Index. Holding 67 stocks in its basket, it is widely diversified across security with each accounting for no more than 7.7% share. The ETF has AUM of $353.3 million and charges 40 bps in annual fees (read: Is an Oil ETF Rally on Middle East Tensions Sustainable?).
iShares Global Energy ETF (IXC - Free Report) – Yield: 3.82%
This ETF follows the S&P Global 1200 Energy Sector Index, giving investors exposure to global companies that produce and distribute oil and gas. It is relatively popular and liquid with AUM of $1.3 billion and charges 47 bps in annual fees. The product holds 66 stocks in its basket with heavy exposure to Exxon Mobil XOM and Chevron CVX.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>