AMLP: High Yield Potential Amid Rising Energy Infrastructure Demand

In an era where energy demand is surging and inflation-driven commodity prices dominate headlines, contrarian income investors are increasingly turning to overlooked sectors for stability and yield. Among these, energy infrastructure Master Limited Partnerships (MLPs) have emerged as a compelling niche, offering tax-efficient exposure to high-quality midstream assets. The Alerian MLP ETF (AMLP) has become a focal point for investors seeking to capitalize on this trend, boasting a trailing twelve-month dividend yield of 7.74% as of July 19, 2025. While this figure falls short of the 8.2% cited in recent discussions, it remains significantly higher than the average yield of 3.06% for the ETF Database MLPs category. This article explores AMLP's potential as a high-yield vehicle, while dissecting the tax complexities, fee structures, and market sustainability that define its appeal—and risks.

The Contrarian Case for Energy Infrastructure

Energy infrastructure MLPs, which dominate AMLP's portfolio, are uniquely positioned in today's market. Unlike upstream oil and gas producers, which face volatility tied to commodity prices, midstream MLPs earn steady cash flows from transportation, storage, and processing fees. These operations are less sensitive to short-term price swings and more aligned with long-term demand for energy infrastructure. As global energy consumption climbs—driven by population growth and industrialization—midstream MLPs benefit from consistent throughput and long-term contracts, making them a stabilizing force in a volatile market.

AMLP's portfolio reflects this focus, with 15 holdings concentrated in midstream energy giants. The top 10 MLPs, accounting for 97.9% of assets, include industry leaders like Energy Transfer LP (ET), Plains All American Pipeline (PAA), and Enterprise Products Partners (EPD). These firms operate critical infrastructure that is indispensable to the U.S. energy grid, offering predictable cash flows and a moat against obsolescence.

Tax Efficiency and the C-Corp Conundrum

AMLP's tax structure, however, introduces a layer of complexity. Unlike traditional MLPs, which are pass-through entities and avoid corporate-level taxation, AMLP is taxed as a Subchapter C corporation. This means the ETF itself pays taxes on its income, reducing net returns to investors. The fund's deferred tax liability (DTL) is adjusted periodically based on MLPs' tax reporting, as seen in a recent $3.6 million DTL reduction on May 30, 2025. While this adjustment boosted net asset value (NAV) temporarily, it underscores the need for investors to monitor how tax accruals impact AMLP's performance.

Despite this, AMLP remains a tax-efficient option compared to traditional corporations. Its dividend distributions, derived from MLPs' pass-through income, retain a significant after-tax edge for investors. The ETF's 0.85% expense ratio, while higher than some peers, is offset by its focus on high-yielding MLPs. Investors should weigh this fee against the tax drag of corporate taxation, which can erode returns over time.

Navigating the Risks: Concentration, Fees, and Regulatory Shifts

AMLP's concentrated portfolio—97.9% in the top 10 MLPs—offers deep exposure to midstream energy but amplifies risk. A downturn in any of these key holdings, such as a regulatory challenge or operational disruption, could disproportionately impact the ETF. For example, a reclassification of an MLP to a corporation for tax purposes could reduce its distributable cash flow, directly affecting AMLP's yield. Investors must stay vigilant about regulatory changes, particularly as policymakers scrutinize energy sector tax benefits.

Additionally, AMLP's high yield is not without precedent for volatility. While the ETF has maintained a consistent $0.94–$0.98 quarterly payout in 2025, its yield can fluctuate with market conditions. The recent tax accrual adjustment highlights how external factors—such as capital loss carryforwards from MLPs—can influence NAV and, by extension, the ETF's valuation.

A Contrarian Play in a Rising Energy Price Environment

The current energy landscape presents both challenges and opportunities for AMLP. As oil and gas prices climb, midstream MLPs benefit from higher throughput and utilization rates. However, rising interest rates and inflationary pressures could strain MLPs' debt-laden balance sheets. AMLP's top holdings, while robust, are not immune to refinancing risks or margin compression.

For contrarian investors, these risks are part of the calculus. AMLP's 7.74% yield, combined with its focus on infrastructure with long-term durability, positions it as a compelling alternative to traditional high-yield bonds or dividend-paying equities. The key is to balance the ETF's tax inefficiencies and concentration risks with its income potential and sectoral resilience.

Conclusion: Strategic Allocation for Income-Driven Portfolios

AMLP is not a one-size-fits-all solution, but for income-focused investors with a contrarian mindset, it offers a unique blend of high yield and energy infrastructure exposure. The ETF's 7.74% yield, while slightly below the 8.2% often cited, remains attractive in a low-yield market. However, success with AMLP requires careful monitoring of tax liabilities, portfolio concentration, and regulatory developments.

Investors should consider AMLP as a satellite holding in a diversified income portfolio, complementing lower-yielding but more liquid assets. By aligning with the long-term demand for energy infrastructure and hedging against MLP-specific risks, AMLP can serve as a cornerstone for contrarian income strategies in a rising energy price environment.