Plains All-American Pipeline LP (PAA & PAGP) - Jan 21

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Plains All-American Pipeline LP (PAA & PAGP) - Jan 21

Post by dan_s »

PAA is a large-cap mid-stream company that is an MLP. It's general partner is PAGP an C-Corp. that pays a dividend that is the same as PAA's quarterly cash dividends. PAA trades as a slightly lower price, so its yield is higher and it is partially tax deferred.

I own and recommend PAGP for IRA accounts since it is a C-Corp., so you avoid the messy income tax reporting problems.

Below is cut from a TipRanks article that recommends PAA for its big dividends.

Read the last sentence of this post carefully.
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Plains All American Pipeline (PAA)

First up is Plains All American Pipeline, a hydrocarbon midstream company. PAA operates in the area between drilling wellheads and customers, moving crude oil, petroleum products, natural gas, and natural gas liquids through a network of pipelines, storage tank farms, transport hubs and transfers, refineries, and terminals. The company’s assets also include more than 2,000 trucks and trailers and some 6,000 crude oil and natural gas liquid railcars. The company, which is based in Houston, Texas, can handle the movement of more than 6 million barrels per day of petroleum and natural gas liquids.

The business is just as big as it sounds, and in dollar terms, PAA saw top line revenues of $14.33 billion in its last reported quarter, 3Q22. This total was up 33% year-over-year, and reflected a combination of higher transport volumes and higher commodity prices. Getting down to the bottom line, the company had a net income of $384 million, a solid turnaround from the $60 million loss reported in the prior-year quarter.

On cash, Plains All American delivered a strong performance in 3Q22, with net cash from operations of $941 million, almost 3x the $336 million cash from ops delivered in 3Q21. Free cash flow declined y/y, from $1.09 billion to $726 million, but was still enough to fully fund an increased dividend payment. After distributions, PAA had an FCF of $537 million.

Turning to the dividend, the company most recent declaration was made on January 9, for a Q4 payment of $0.2675 per common share. This is up 5 cents from the last payment, and the annualized common share div of $1.07 yields a solid 8.8%. Not only is that dividend more than 4x the average found in the broader markets, it beats the December annualized inflation by 2.3 points, guaranteeing a real rate of return for investors.

This stock caught the eye of Truist’s 5-star analyst Neal Dingmann, who sees reason for optimism and says of PAA: “Plains continues to benefit from solid Permian organic and external growth as the basin remains one of the few domestic growth engines. We remain confident the company will be able to continue to boost its dividend along with continue to opportunistically repurchase equity with $200mm remaining on its authorization. In addition to the shareholder return, we forecast Plains to continue lowering leverage while potentially beginning to call some preferred shares next year assuming the shares are repriced."

With returns on this scale, Dingmann sees fit to rate the stock as a Buy, and his $15 price target implies a gain of ~23% on the one-year horizon. Based on the current dividend yield and the expected price appreciation, the stock has ~31% potential total return profile. (To watch Dingmann’s track record, click here)

Overall, PAA shares have a Strong Buy rating from the analyst consensus, based on 6 recent reviews that include 5 Buys and 1 Hold. The shares are selling for $12.16 and their $15.67 average price target implies room or a 12-month upside of ~29%.
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From PAA's Q3 press release:
> Management currently intends to recommend to the Board of Directors of PAA GP Holdings LLC (“the Plains Board”) an annualized increase of $0.20 to PAA’s and PAGP’s fourth-quarter 2022 distribution payable in February 2023 (one quarter earlier than our standard beginning-of-the-year annual budgeting process), which would increase the annualized rate from $0.87 to $1.07 per common unit and Class A share
> Beyond 2023, as part of its standard annual review process, management anticipates targeting annualized common distribution increases of approximately $0.15 per unit each year until reaching a targeted Common Unit Distribution Coverage Ratio of approximately 160%
Dan Steffens
Energy Prospectus Group
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