Neuberger Berman Energy Infrastructure and Income Fund Inc.: A Buy Recommendation

Neuberger Berman Energy Infrastructure and Income Fund Inc. (NYSE:NML) is given a buy rating due to its strong 7.96% distribution yield and 10.57% discount to its Net Asset Value. The fund offers low debt and potential capital gains.

Neuberger Berman Energy Infrastructure and Income Fund Inc. (NYSE:NML) has garnered significant attention from investors due to its robust 7.96% distribution yield and a 10.57% discount to its Net Asset Value (NAV). The fund, launched in 2012, is a closed-end fund (CEF) that invests primarily in midstream energy companies through Master Limited Partnerships (MLPs). These companies operate in the transportation, storage, and pipeline industry, providing stable cash flows that underpin the fund's performance.

NML's portfolio is heavily concentrated, with the top five holdings representing 44% of the fund's assets. Key holdings include Targa Resources Corp. (TRGP) and Energy Transfer LP (ET), each contributing more than 10% to the fund. This concentration allows the management team to take strategic bets while offsetting risks with smaller holdings. The fund holds 30 companies and has an annual portfolio turnover of 27%.

The fund's leverage stands at 16.10%, which is lower than many of its peers. This lower leverage translates to smaller risks for investors. Morningstar rates the fund 4 stars, indicating a strong track record of performance. Over the last five years, NML has outperformed both the S&P 500 and the Alerian MLP Index (AMLP), showcasing the fund's solid management skills despite its low leverage.

The fund's dividend has been growing steadily since the COVID-19 shock, reaching $0.0584 per share per month, or $0.70 per year per share. This equates to a current yield of 7.96%. However, the 2023 distribution was not fully covered, resulting in a net investment loss of $4 Mn. Despite this, the fund's unrealized gains of almost $25 Mn make the yield sustainable.

NML generates its distributions from cash flows, primarily from MLPs, debt instruments, and common stock dividends. The fund's expense ratio is 2.72% excluding deferred income tax benefits, rising to 13.24% when including these benefits. The fund's cost of debt is manageable at 16.10%, below the levels of many of its peers.

Risks associated with NML include potential distribution cuts during market volatility, increased volatility due to geopolitical tensions, and the impact of interest rate changes on distributions. Additionally, regulatory changes in MLP tax policies or environmental laws could affect the fund's holdings. However, the bipartisan support for U.S. energy infrastructure may mitigate these risks.

In conclusion, Neuberger Berman Energy Infrastructure and Income Fund Inc. (NYSE:NML) presents an attractive opportunity for investors seeking income and potential capital gains. The fund's strong yield, NAV discount, and solid performance make it a compelling choice for investors looking to invest in the midstream energy sector. However, investors should be aware of the risks associated with the fund, including market volatility and regulatory changes.

References:
[1] https://seekingalpha.com/article/4797051-nml-strong-yield-low-debt-and-capital-gains-potential