A Secure Pipeline that Pumps Some Income into Any Portfolio

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Plains All American Pipeline L.P. (NYSE: PAA) is involved in the transportation, storage, and marketing of crude oil and other refined products. Additionally, Plains All American is engaged in the processing, transportation, storage, and marketing of natural gas liquids. The company possesses a vast network of pipelines stretching through the United States and Canada. Plains all American is currently worth $13.90 billion, and retains 18,700 miles of active pipelines, 4,200 railcars, 750 trucks, and 83 barges, while at the same time paying out a dividend yielding 4.94%. Over the past year Plains All American has risen 38.70%, outperforming the market by a marginable rate. So why is this pipeline company a secure method to pump some income into any portfolio?  

 

Decent Earnings per Share Growth

In 2009, Plains All American reported earnings per share $3.32. In 2014, the average analyst projects Plain All American’s earnings per share climbing to $5.91. These staggering figures display 78.01% growth in Plain’s earnings per share over just 5 years. Based on these statistics, Plains All American’s compound annual growth rate (CAGR) is 12.23%. A double digit CAGR is astonishing, displaying consistency and long-term growth. Plain’s growth is not one of an internet stock’s, but is growing at a pace that will allow Plains All American to sustain its large dividend, as well as grow it at a significant rate. The chart below displays Plains All American’s sales, operating profit, net income, net margin, and operating margin over the coming years.

 

Plain’s Dividend: Gigantic and Growing

Currently, Plains All American pays out a quarterly dividend of $1.07, or an annual dividend of $4.28, which at the current price of $86.19, yields 4.94%. This is up from 2011’s annual dividend of $3.91, and is projected to continue to grow at an accelerated rate in the coming future. By 2014, the average consensus believes Plains All American’s annual dividend will be raised to $4.92. That displays a 14.95% increase in Plain’s dividend over just two short years. At current prices, that would put Plain’s dividend as yielding 5.71%. Several pipeline companies pay out dividends that exceed their earnings per share for the year, which is concerning as they are not taking in as much as they are paying out. That is a recipe for a decrease in the dividend, yet Plains All American only pays out about 80% of its earnings in its dividend, leaving the company money to utilize in acquisitions or reinvest in their own business, both of which produce growth. The chart below displays Plain’s earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the foreseeable future.

 

Is Plains All American the Cream of the Crop?

Compared to some of Plain’s most prominent competitors, such as: Magellan Midstream Partners L.P. (NYSE: MMP), Western Gas Partners L.P. (NYSE: WES), Enbridge Incorporated (NYSE: ENB), and Kinder Morgan Energy Partners L.P. (NYSE: KMP), Plains All American stacks up relatively in-line.

 

2009-2014 EPS Growth

Current Dividend Yield

2009-2014 Dividend Growth

PAA

78.01%

4.94%

35.16%

MMP

113.06%

4.85%

52.92%

WES

111.29%

4.26%

111.38%

ENB

-0.47%

2.82%

90.54%

KMP

102.38%

6.16%

34.05%

       
 

Price/Earnings Ratio

Price/Earnings/Growth Ratio

Net Profit Margin

PAA

17.19

2.70

2.13%

MMP

19.48

2.02

23.45%

WES

28.70

1.50

20.10%

ENB

46.05

2.15

5.17%

KMP

80.23

10.25

0.98%

In terms of growth, Plains is slightly below average, while Magellan stands out to the upside. Kinder Morgan pays out the biggest dividend, with Western Gas having the fastest growing dividend. In the fundamental ratio comparison, Plains appears to be trading at the lowest multiple, while Kinder Morgan appears to be trading at a huge premium. When growth is taken into account, Western Gas is the cheapest, while again Kinder Morgan is trading at a lofty multiple. In the net margin comparison, Magellan stands out to the upside, while Kinder Morgan barely is positive.

The Bakken Factor

The United States’ share of the Bakken Shale oil field, which spans Montana and North Dakota, is undeniably one of the largest discoveries in the oil industry. By the end of 2016, one large independent operator estimates the field producing 1.2 million barrels of oil a day. That is a titanic number. With all this oil being produced there is going to be a colossal need for pipelines that can carry this oil to refineries or other regions of the country. Plains All American Pipeline is perfectly positioned to take advantage of this necessity, and will undeniably benefit. MLPs, such as Plains, are paid by the volume of commodity they transport, and as there will be a huge volume in the Bakken by 2016, Plains should find the Bakken oil field to be a gold mine.

The Foolish Bottom Line

In this volatile market, with a fiscal cliff looming, a European recession nearly inevitable, and the United States’ unemployment rate rising, a stock that yields 5% cushions any portfolio in difficult times. Since Plains All American began paying out dividends in 1999, it has not missed a payment, increasing its dividend nearly annually. Additionally, Plains All American should find significant growth as it is perfectly positioned to take advantage of many of the modern day booms, such as the Bakken. The chart below displays the areas in which Plains All American has exposure.

 

The foolish bottom line is that Plains All American is an income stock, but may provide growth through acquisitions and reinvestment, and is a great pipeline that pumps income into any portfolio. 


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Magellan Midstream Partners, L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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