PAA and PAGP for High Yield - Feb 16

[dan_s]

I just finished updating my forecast/valuation model for Plains All American Pipeline (PAA).

PAA is an MLP. If you shy away from MLP's, you can get the same quarterly divided from PAGP which is a C-Corp. Just keep in mind that C-Corp. dividends are fully taxable and MLP distributions are mostly tax deferred. C-Corps are better suited for an IRA.

PAA's distributions were $1.44 in 2019 for annual yield of 8.8% based on the February 14 closing price of $16.38.

Based on my forecast, PAA's distributions are expected to increase by 5% in 2020 and another 10% in 2021 because their capex spending will be going way down. Distributable Cash Flow ("DCF") should double from 2019 to 2021.

My forecast model has been posted to the EPG website.

[dave_n]

Dan, any sense on what is pressuring PAA? Of all pipeline companies, this one has a good dividend coverage ratio. They've improved their debt profile as well.

The only thing I can think impacting them is that supply from Permian is at risk with low oil prices. I have to think with connections going up to Canada, they can optimize pipeline usage with or without Permian over long-term. Am I missing something here? Near-term debt maybe?

[dan_s]

Just overall fear driving the markets these days + U.S. oil production now sure to decline.