Is Now the Time to Buy Midstream/MLP Yields as Valuations Hit Decade Lows?

The midstream and master limited partnership (MLP) sector has long been a cornerstone of income-focused portfolios, offering a blend of high yields and infrastructure-driven stability. As of Q4 2025, the sector appears to be trading at a significant discount to its historical norms, with price-to-asset ratios and yield spreads suggesting a potential inflection point for contrarian investors. For those willing to look beyond near-term macroeconomic headwinds, the current valuation environment may present an opportunity to capitalize on structural growth drivers in energy infrastructure.

Valuation Metrics: A Decade-Long Discount

The Alerian MLP Infrastructure Index (AMZI) currently trades at a price-to-asset ratio of 8.8x, based on estimated 2025 EBITDA, a level below its 10-year average of 10.4x. This discount reflects a combination of factors, including oil price volatility, geopolitical uncertainties, and broader macroeconomic concerns that have dampened investor sentiment in energy infrastructure. However, this undervaluation is not a reflection of the sector's fundamentals. Midstream MLPs remain attractively priced relative to their long-term cash flow potential, with strong distribution growth and free cash flow generation underpinning their resilience.

Yield Spreads: A Magnet for Income Seekers

The sector's yield spreads have widened further, offering compelling returns for income-focused investors. As of November 2025, AMZI yielded 8.0%, surpassing its three-year average of 7.5%. Similarly, the Alerian MLP Index (AMZ) yielded 7.6%, above its historical benchmark. Individual MLPs like Plains All American Pipeline (PAA) and CrossAmerica Partners (CAPL) have pushed yields to 9.6% and 10.5%, respectively. These spreads are not merely a function of desperation-driven payouts but are supported by disciplined capital allocation and robust distribution coverage metrics.

Structural Growth Drivers: Natural Gas and AI-Driven Demand

The long-term outlook for midstream MLPs is anchored in structural tailwinds, particularly in the natural gas sector. Rising global demand-driven by coal-to-gas switching in emerging markets and the transition to cleaner energy sources-has positioned natural gas as a critical bridge fuel in the energy transition. U.S. production is expected to hit record levels, with midstream operators benefiting from increased throughputs.

A less-discussed but equally significant driver is the surge in natural gas demand linked to AI-driven power generation and data center expansion. Analysts estimate that AI-related energy consumption could boost natural gas demand by 25%-34% by 2030, creating a durable tailwind for midstream infrastructure. This trend underscores the sector's role in powering the digital economy, a factor that is often overlooked in traditional energy analyses.

Risks and Volatility: A Contrarian's Challenge

No investment thesis is without its risks. The midstream sector remains exposed to oil price volatility, which can impact upstream production and, by extension, midstream volumes. Recent negative pricing at the Waha hub and potential OPEC+ supply decisions have added to this uncertainty. Additionally, regulatory developments and the completion of new infrastructure projects could introduce short-term volatility.

However, these risks are largely cyclical and do not negate the sector's long-term value proposition. Midstream MLPs have demonstrated financial discipline, with improved leverage ratios and strong free cash flow generation providing a buffer against near-term headwinds. For contrarian investors, the key is to differentiate between temporary noise and enduring fundamentals.

Conclusion: A Case for Strategic Entry

The midstream/MLP sector is at a crossroads. While current valuations reflect a pessimistic view of the near-term macroeconomic environment, they also offer a compelling entry point for investors with a multi-year horizon. The combination of discounted price-to-asset ratios, attractive yield spreads, and structural growth drivers-from natural gas demand to AI-driven energy consumption-creates a compelling case for strategic allocation.

For contrarian income investors, the question is not whether the sector is risky, but whether the rewards justify the risks. Given the sector's strong balance sheets, distribution growth potential, and alignment with long-term energy trends, the answer appears to be a resounding yes.