Unlocking Steady Income: NML's Resilient Distributions Amid Energy Market Volatility

In a landscape where energy markets oscillate between boom and bust, the Neuberger Berman Energy Infrastructure and Income Fund (NML) stands out for its unwavering monthly distributions. For over a year, NML has maintained a consistent $0.0584-per-share payout, translating to an 8.2% annualized yield as of May 2025. This stability, amid a sector notorious for volatility, positions NML as a compelling income play—but is this resilience sustainable? Let's dissect the fund's strategy, tax implications, and exposure to MLPs to uncover why investors should take note.

The Unbroken Distribution Track Record

Since late 2024, NML has delivered $0.0584 monthly without deviation, a stark contrast to peers that slashed payouts during energy downturns. As of Q1 2025, the fund's TTM yield sat at 7.53%, slightly below its peak but still robust. This consistency stems from NML's focus on Master Limited Partnerships (MLPs), which dominate its portfolio.

MLPs like Targa Resources (TRGP), Energy Transfer (ET), and Enterprise Products (EPD)—which collectively represent nearly 40% of NML's holdings—generate predictable cash flows from midstream energy operations (pipelines, processing facilities). These assets are "tollbooth" businesses: they earn fees regardless of commodity prices, shielding NML from oil/gas price swings.

MLP Exposure: A Double-Edged Sword

While MLPs anchor NML's income machine, their structure demands scrutiny. The fund's portfolio is 118.5% allocated to Energy, with leverage (16.56% effective) amplifying returns—and risks.

The leverage explains NML's NAV premium/discount volatility. However, MLPs' tax efficiency is a key advantage: their pass-through structure avoids double taxation. Yet NML, as a regulated investment company (RIC), pays federal taxes before distributing income, reducing net payouts. This creates a trade-off: investors gain diversification and professional management but lose some MLP tax benefits.

Tax Considerations: Return of Capital's Role

A portion of NML's distributions qualifies as non-taxable return of capital (ROC), which reduces shareholders' cost basis. While this defers capital gains taxes, it's a red flag if ROC exceeds earnings—a sign the fund is eroding principal.

Historically, NML's ROC has remained below its distributable cash flow, suggesting sustainability. However, the fund's low Dividend Sustainability Score (50%) warns that rising MLP costs or declining cash flows could pressure payouts. Investors must monitor this metric closely.

Why NML's Model Holds Up (For Now)

Critics point to NML's reliance on a concentrated, leveraged MLP portfolio. But three factors justify its resilience:

1. Demand Stability: Midstream MLPs thrive on long-term contracts with oil/gas producers, insulating cash flows.
2. Inflation Hedge: Energy infrastructure spending is surging globally, bolstering MLP valuations.
3. Management Expertise: Neuberger Berman's active portfolio management—rebalancing holdings and leveraging opportunistically—has preserved distributions through cycles.

Risks and the Call to Action

NML isn't without risks:
- MLP Liquidity: Energy sector downturns could strain MLP cash flows.
- Leverage Costs: Borrowing expenses rise in high-rate environments.
- Tax Complexity: ROC distributions complicate tax filings.

Yet these risks are offset by NML's 8.2% yield and proven consistency. For income seekers willing to accept moderate volatility, NML offers a rare blend of MLP exposure and monthly payouts.

Final Verdict: Act Before the Window Closes

NML's distributions have withstood energy market turbulence, but its low sustainability score signals urgency. With MLPs poised to benefit from global infrastructure spending and NML's NAV trading at a slight discount to its 52-week high, now is the time to act.

Investors should:
- Monitor NML's quarterly cash flow reports for ROC trends.
- Consider dollar-cost averaging to mitigate timing risk.
- Pair NML with non-energy income assets for diversification.

The fund's blend of MLP grit and monthly discipline makes it a standout in an uncertain market—don't miss the chance to lock in this income powerhouse.

Investing involves risk, including loss of principal. Past performance does not guarantee future results.