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To its credit, the technology sector has recently been impressive in terms of dividend growth and payout initiations. Same goes for the communication services sector, but those groups still sport low yields.
Take the case of the Nasdaq 100 Index (NDX), which allocates two-thirds of its weight to those sectors. Its dividend yield as of Jan. 14 was a mere 0.56%. Breaking things down further, two members of the magnificent seven – Amazon (AMZN) and Tesla (TSLA) – aren’t dividend payers. Two others – Alphabet (GOOGL) and Meta (META) – are new dividend payers and thus have low payouts.
Those are just a few examples, but they underscore the point that the artificial intelligence (AI) trade in its most basic form is one of capital appreciation, not income. However, there are derivative AI trades through which investors can harness income. Data center real estate investment trusts (REITs) and utilities stocks have been gaining acclaim on this front.
Advisors and investors may also want to acknowledge the potential income potency of energy infrastructure names, some of which have credible ties to the AI trade as well.
Evaluating EMLP for AI Income
At first glance, the First Trust North American Energy Infrastructure Fund (EMLP) may not appear to be an AI play, but it is. Home to nearly $3 billion in assets under management, EMLP turns 13 years old in June, making it one of the earliest iterations of a successful actively managed ETF.
As for AI, EMLP has those because natural gas is vital in terms of powering AI. Yes, nuclear and renewable energy are expanding with the former seen as the future of AI power, but for now and in the years ahead, natural gas is the logical source to feed AI’s massive power demands.
“We believe that the intermittent nature of renewable energy, coupled with the long lead times and high costs associated with nuclear power, likely enhances the role of natural gas-fired electricity in meeting the increasing demand for power,” according to First Trust research. “Natural gas is reliable, domestically abundant, relatively inexpensive, and significantly cleaner than coal.”
EMLP figures into the equation because many of its 70 holdings are involved in the storage and transportation of natural gas. As for income, the ETF sports a 12-month distribution rate of 3.20%, well in excess of what investors find with more traditional AI equities.
AI Players Cozying Up to ‘Natty’
There’s clear evidence that some of the largest AI players are embracing nuclear energy, but that doesn’t diminish the case for EMLP. Consider Facebook parent Meta, which recently inked a 15-year natural gas deal with Louisiana power provider Entergy.
“We believe certain natural gas pipeline operators—depending on their location—are uniquely placed to capitalize on increasing energy demands due to their pivotal role in the energy supply chain,” adds First Trust. “New pipelines are typically backed by long-term contracts, providing stability and earnings growth potential, even as new natural gas-fired generation and expanded liquified natural gas export capacity support further growth in natural gas demand. U.S. power generation from natural gas recently hit record highs, accounting for nearly half of the electricity in the contiguous US in August 2024.”
Bottom line: EMLP and natural gas don’t scream “AI ties,” but they have those traits and income to go along with them.