One of the potential tailwinds for midstream in 2021 relative to past recoveries is the proliferation of buyback programs supported by expectations for robust free cash flow generation this year. Today’s brief note provides an update to Alerian’s November piece on midstream buybacks with total capital spent on share repurchases through year-end 2020 by company and index-level perspective.
Since Alerian’s last buyback note in November, Pembina Pipeline (PPL CN) formally announced a repurchase program, which the company first discussed in December. With PPL added, the table below now includes fifteen midstream MLPs and corporations with buyback authorizations. While the number of companies with buyback programs has not changed significantly since mid-November, there was notable repurchase activity in 4Q20, particularly from companies that announced buyback programs earlier in the quarter. Of the combined $322 million spent on repurchases in 4Q20 by the companies below, $224 million or approximately 70% was spent by those companies that announced buyback authorizations in October and November 2020.
For index-level perspective, the table includes company weightings in the Alerian Midstream Energy Index (AMNA), the Alerian MLP Infrastructure Index (AMZI), the Alerian Midstream Energy Select Index (AMEI), and the Alerian Midstream Energy Dividend Index (AEDW) as applicable. The AMZI, the only MLP index shown, has the largest weighting to companies with buyback authorizations at 63.8%, reflecting the widespread adoption of buyback programs by large MLPs. For the other three indexes, which include both MLPs and US and Canadian corporations, constituents with buyback programs represent roughly half of the indexes by weighting.
For midstream investors, it is positive to see companies supporting equity prices in the ongoing recovery by executing on buyback programs as a means of returning cash to shareholders beyond generous dividends.
AMNA is the underlying index for the ETRACS Alerian Midstream Energy Index ETN (AMNA). AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (AMUB). AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR). AEDW is the underlying index for the ETRACS Alerian Midstream Energy High Dividend Index ETN (AMND) and the Alerian Midstream Energy Dividend UCITS ETF (MMLP).