Plains All American Pipeline (PAA & PAGP) Q4 Results - Feb 10

[dan_s]

Yesterday PAA announced Q4 results. Plains GP Holdings, L.P. (PAGP) is one of the four midstream companies in our High Yield Income Portfolio.
PAA is a MLP and PAGP is a C-Corp. They pay identical quarterly dividends. PAGP is better suited for an IRA.
--------------------------------
2023 Highlights for PAA

Fourth-quarter and full-year 2023 Net income attributable to PAA of $312 million and $1.23 billion, respectively, and 2023 Net cash provided by operating activities of $1.01 billion and $2.73 billion, respectively < Compare to my Q4 Adjusted Operating Cash Flow forecast of $760 million.

Delivered strong fourth-quarter and full-year 2023 Adjusted EBITDA attributable to PAA above the top-end of guidance with $737 million and $2.71 billion, respectively

Generated full-year 2023 Adjusted Free Cash Flow (excluding changes in Assets & Liabilities) of $1.60 billion and achieved year-end leverage of 3.1x

Delivered on commitment to increase cash return to equity holders by increasing distributions $0.20 per unit annualized in February 2023, representing a 23% aggregate increase in the annualized distribution versus 2022 levels < PAA has stated that they intend to increase dividends each year by more than $0.15 per unit.

High graded the asset base through continued portfolio optimization including two asset sales and three bolt-on acquisitions

Received two credit rating agency upgrades demonstrating progress on deleveraging efforts and our target to achieve BBB credit ratings

2024 Outlook

Expect full-year 2024 Adjusted EBITDA attributable to PAA of $2.625 - $2.725 billion

Reaffirming leverage ratio target range of 3.25x - 3.75x reflecting commitment to balance sheet strength and flexibility

Board approved increasing the annualized common distribution by $0.20 to $1.27 per unit commencing in February 2024, representing a 19% aggregate increase in the annualized distribution versus 2023 levels< This is a bigger dividend increase than my forecast for 2024. Total Distributable Cash Flow (DCF) per common unit for 2023 was $2.46, so there is lots of room for PAA and PAGP to keep raising the quarterly dividends.

Expect to generate approximately $1.65 billion of Adjusted Free Cash Flow (excluding changes in Assets & Liabilities) and $500 million of Adjusted Free Cash Flow after Distributions (excluding changes in Assets & Liabilities)

Remain focused on disciplined capital investments, anticipating full-year 2024 Investment and Maintenance Capital of +/- $375 million and +/- $230 million, net to PAA, respectively

“Strong execution in 2023 drove better-than-expected results and allowed us to accelerate progress on our long-term goals and objectives. This included lowering our leverage ratio target range, increasing capital returns to equity holders through increased distributions, and completing multiple win-win strategic transactions in both our Crude Oil and NGL segments,” said Willie Chiang, Chairman and CEO of Plains. “Looking forward to 2024, Plains remains well-positioned to deliver value to our unitholders through our continued focus on generating strong free cash flow, capital discipline, and increasing returns to unitholders all while maintaining our financial flexibility.”

[dan_s]

On February 9th PAA closed at $15.40 and PAGP closed at $16.21. < Same dividend but PAGP as a C-Corp. always trades a bit higher because lots of funds cannot own MLPs.
Annualized dividend yield based on share prices above are 8.25% for PAA and 7.83% for PAGP. If you are OK with owning MLPs, PAA is the better BUY for a taxable account because their cash distributions to unitholders are partially tax deferred.

My current valuations are $20 for PAA and $21 for PAGP.

They should be getting upgrades from the Wall Street Gang next week because of strong Q4 results, the increased dividend and detailed guidance for 2024.

My safety rating for these two is A+ due to strong balance sheet and more than 2X DCF coverage for the 2024 dividends of $0.3175 ($1.27 for the year).