Evaluating Neuberger Berman Energy Infrastructure and Income Fund (NML) as a High-Yield Income Play in a Volatile Energy Market

In a market where energy prices swing wildly and capital gains distributions plague investors, Neuberger Berman Energy Infrastructure and Income Fund (NML) has carved out a niche as a high-yield income play. The fund’s 8.2% annualized yield, derived from a consistent monthly payout of $0.0584 per share, is underpinned by a tax-efficient return of capital (ROC) strategy. This approach allows NML to maintain its distribution while deferring tax liabilities for investors, reducing their cost basis in the fund and postponing capital gains taxes until shares are sold [2]. For taxable accounts, this structure offers a compelling alternative to traditional dividends, where the entire payout is taxed as income [2].

NML’s focus on energy infrastructure—particularly master limited partnerships (MLPs), pipeline companies, and renewable energy ventures—further enhances its resilience. These assets generate fees based on volume rather than commodity prices, insulating the fund from the volatility of oil and gas markets [1]. However, the fund’s performance has not been without challenges. In 2023, NML underperformed its benchmark, the Alerian MLP Index, with a 1.71% net asset value (NAV) return compared to the index’s 23.29%. Rising interest rates and leverage costs, which increased the cost of borrowing, were cited as key drag factors [3].

The fund’s tax efficiency is a double-edged sword. While ROC defers taxes, it also reduces the investor’s cost basis, potentially increasing capital gains taxes upon sale [2]. For long-term holders, this trade-off may be favorable, but it underscores the importance of holding NML in tax-advantaged accounts. The fund’s 2024 10-K filing reveals a distribution coverage ratio of 8.01%, indicating that its payout is well-supported by cash flows [3]. Additionally, NML has increased its distributions for three consecutive years, a trend reinforced by its 2.72% expense ratio, which, though higher than the market average, aligns with its specialized energy infrastructure focus [1].

Critics may point to NML’s leverage as a risk. The November 2024 Federal Reserve report on financial sector leverage notes that rising interest rates have amplified costs for leveraged funds, with some institutions facing concentrated exposures to commercial real estate (CRE)-backed loans [4]. NML’s use of leverage, however, appears more targeted, with a portfolio weighted toward energy infrastructure companies that generate stable cash flows. This contrasts with broader CRE risks, though investors should monitor interest rate trends for potential headwinds.

NML’s recent performance offers a mixed picture. Year-to-date in 2024, the fund returned 3.29%, while its 12-month return stands at 17.85% [1]. These figures outpace its 2023 underperformance, suggesting that the fund’s strategy may be recalibrating. The inclusion of renewable energy investments in its updated portfolio—part of a broader shift to diversify beyond traditional MLPs—could further stabilize returns [3].

For income-focused investors, NML’s tax-efficient structure and high yield remain attractive. However, the fund’s sustainability hinges on its ability to navigate interest rate volatility and maintain distribution coverage. As the energy transition accelerates, NML’s pivot toward renewable infrastructure may position it to capitalize on long-term growth while preserving its income-producing capabilities.

**Source:[1] Neuberger Berman MLP (NML) - Stock Analysis, [https://portfolioslab.com/symbol/NML][2] How NML Mastered Tax Efficiency to Deliver 8.2% Yield in ..., [https://www.ainvest.com/news/nml-mastered-tax-efficiency-deliver-8-2-yield-energy-infrastructure-2506/][3] neuberger berman energy infrastructure and income fund inc., [https://www.sec.gov/Archives/edgar/data/1562051/000089843224000100/ncsr.htm][4] November-2024-Leverage-in-the-Financial-Sector.htm, [https://www.federalreserve.gov/publications/November-2024-Leverage-in-the-Financial-Sector.htm]