Master limited partnership (MLP) Plains All American Pipeline L.P. (PAA) boosted its cash distribution for the quarter by roughly 0.8% over the previous distribution of $0.9425 paid in August 2010. The partnership will now pay a distribution of $0.950 per limited partner unit, implying a 3.3% rise from last year’s distribution.
The partnership said that the distribution will be paid on November 12, 2010 to unit holders of record as of November 2, 2010.
This hike in distribution brings the partnership’s annualized distribution to $3.80 per unit, successfully fulfilling the partnership’s goal of reaching an annualized distribution rate of $3.80 per unit by year-end 2010. This hike is also in sync with the company’s goal of raising the annual distribution by 3% to 5%, with further upside potential through larger acquisitions.
Also, PAA’s annualized dividend yield of 5.92% is higher than its peers, Enterprise Products Partners L.P. (EPD) and Sunoco Logistics Partners L.P. (SXL), with respective dividend yields of 5.56% and 5.72%.
The partnership has a long history of increasing distributions to unit holders. With this distribution, Plains has increased the quarterly distribution to limited partners in 24 out of the past 26 quarters. Plains’ consistent distribution hikes over the past quarters illustrate the partnership’s commitment to provide returns to unit holders, enhancing unit holder value.
We note that Plains is in a position of strength with respect to its cash position and cash inflow, primarily supporting the hike in cash distribution. The partnership ended the June quarter with cash and cash equivalents of $15 million and a debt-to-capitalization ratio of 55%.
Additionally, Plains further enhanced its liquidity position, in July, through the issuance of $400 million of 5-year senior notes priced to yield 3.98%. The offering closed in mid-July raising net proceeds of $396 million. The partnership plans to use a portion of these proceeds to repay outstanding debt under its credit facilities.
Plains expects adjusted earnings of 47-68 cents per unit for the third quarter of 2010 and $2.50-$2.93 per unit for fiscal year 2010. The Zacks Consensus Estimate for the third quarter of 2010 is earnings of 63 cents per unit. For the full year, the Zacks Consensus Estimate is earnings of $2.80 per unit.
Delaware-based limited partnership, Plains is one of the largest midstream crude oil companies in North America, having an extensive network of pipeline transportation, terminal, storage and gathering assets in key oil-producing basins and transportation corridors, and in major market hubs in the United States and Canada.
Plains is in a sound position owing to its diverse asset base, adequate liquidity, low-risk asset profile and dominant crude oil storage position. However, changes in supply and demand fundamentals for crude oil and refined products can affect the company’s performance.
We retain our Neutral rating on Plains, indicating no clear directional pressure on the shares over the near term. The stock currently has a short-term Zacks #2 Rank (Buy).
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