Investing in energy, particularly midstream energy companies, has long been associated with income generation, and for good reason. Midstream energy companies are involved in the transportation, storage and processing of crude oil and natural gas, and while broad equity markets have struggled year to date, midstream energy has remained a bright spot for investors. Alerian Midstream and Alerian MLPs have significantly outperformed major equity indices, delivering YTD returns of 6.3% and 12.6%, respectively, compared to the S&P 500’s -4.3% decline and the NASDAQ 100’s -8.1% drop.

This resilience underscores the enduring appeal of midstream energy assets, which are characterized by stable cash flows, attractive yields and inflation-resistant business models. Unlike traditional energy equities that can be highly sensitive to commodity price swings, midstream companies generate revenue through long-term contracts, reducing exposure to volatile oil and gas prices.

The Power of Yield and Stability

Energy investments historically offer strong income potential, with dividends making up a substantial portion of total returns. Over the past three decades, nearly 40% of the total return from leading U.S. energy companies has come from dividends. While broad energy indices typically yield between 2% and 4%, midstream energy and MLPs often offer even higher yields, making them attractive for investors seeking income without excessive risk exposure.

However, traditional energy investing often forces investors to choose between income and growth. The midstream space, particularly with active strategies, presents an opportunity to optimize both. The Westwood Salient Enhanced Midstream Income ETF (NYSE: MDST), which is celebrating its one-year anniversary, is designed to capture this balance — delivering yield enhancement while maintaining meaningful exposure to price appreciation.

A Smarter Approach to Energy Income

Rather than relying solely on dividends, strategies like MDST utilize options overlays and covered calls to enhance yield. This allows investors to potentially achieve double-digit yields while retaining a substantial portion of the upside from midstream equity appreciation. In today’s market, where energy equity valuations have normalized, this approach provides an attractive alternative to traditional dividend investing.

Additionally, this income-enhanced strategy helps dampen volatility. In months of modest market pullbacks, the income from option premiums acts as a buffer, mitigating losses and creating a more stable return profile. Historical estimates suggest that such an approach yields a beta of 0.7-0.8 relative to broader energy indices, reducing risk while maintaining competitive total return potential.

Positioning for the Future

As investors seek ways to generate sustainable income in a volatile market, midstream energy remains a compelling solution. Unlike high-yield bonds, which offer fixed returns with no equity upside, midstream investments provide both dividend yield and capital appreciation potential. Moreover, unlike generic covered-call ETFs that apply systematic overlays across broad indices, an actively managed approach focused on midstream energy allows for a more tailored strategy — maximizing income while preserving upside.

With midstream assets leading the energy sector’s performance in 2025 and MDST celebrating its first anniversary, now is the time for investors to reconsider how they approach energy investing. By leveraging innovative yield-enhancing strategies, investors can balance income and growth more effectively — ensuring they remain well-positioned in a rapidly evolving market.