Plains All American Pipeline (PAA)

We’ll start in the energy industry, with a midstream company, Plains All American Pipeline. Midstream companies operate between the wellheads and the customers, operating networks of pipelines, storage tank farms, transport hubs, refineries, and other assets, including rail tankers and river barges, that are optimized to transport crude oil, refined petroleum products, natural gas, and natural gas liquids. Plains All American has just such an asset network, with over 18,000 miles of pipelines for crude oil and natural gas, along with storage tanks and terminal facilities.

The company’s network is spread out from northern Alberta down to the Guld Coast, in the Great Lakes region and the Chesapeake Bay, and in Southern California. In addition, the company owns and operates over 2,100 trucks and trailers, and some 6,000 railroad cars, both oil tankers and NGL carriers.

That all adds up to an $8.36 billion company, that brought in a total of $42.7 billion in revenue last year. This year, first half revenue has already reached $30.1 billion, putting the company well on track to beat 2021’s total top line. Revenue in Q2, the most recent reported, came to $16.3 billion, up 59% year-over-year. Plains All American has reported sequential revenue gains in each of the last 8 quarters.

At the bottom line, PAA reported 22 cents in diluted EPS in Q2, a far better result than 2Q21, when the company reported a net loss per share of 37 cents.

As can be expected from the sound revenue and earnings results, PAA also showed a solid cash position in the second quarter, with total cash assets as of June 30, 2022 growing 8.6% year-over-year to reach $6.66 billion. The company brought in $792 million in net cash from ops in 2Q22.

For dividend investors, these results translate into a generous common share dividend payment of 21.75 cents, or nearly the whole of the diluted EPS. The common stock dividend annualizes to 87 cents per share, and at current prices gives the stock a yield of 7.3%. This yield is more than triple the average dividend yield found among S&P-listed firms – and it is within 1 percentage point of the current rate of inflation, making it a sound choice for investors seeking protection from rising prices.

With a background like that, it’s no wonder that PAA has attracted rave reviews from the analysts. Among the bulls is Seaport analyst Sunil Sibal who writes of this stock: “PAA enjoys significant operating leverage on its Permian pipeline footprint and can thus continue to benefit from increased activity levels in the basin without having to spend significant additional capital. Additionally, its Canadian NGL fractionation footprint is expected to benefit from frac tightness in the region. With good progress on the deleveraging front, we believe PAA is well positioned to increase returns to its equity holders. We thus maintain our positive stance…”

In line with this view of PAA’s underlying strength, Sibal rates PAA shares a Buy with a $14 price target that implies room for ~17% growth in the year ahead. Based on the current dividend yield and the expected price appreciation, the stock has ~24% potential total return profile

This is hardly the only bullish take on PAA, as 10 of the 13 recent analyst reviews recommend the stock as a buy, supporting a Strong Buy analyst consensus rating. The shares are priced at $11.98 and their $14.88 average target gives a 24% one-year upside potential.