PAA Hikes Cash Distribution

The board of directors of Plains All American Pipeline L.P. (PAA - Analyst Report) announced a 4% increase in its quarterly cash distribution on July 13. The company will now pay 94.25 cents per limited partner unit, up from 90.50 cents paid in August 2009. The increased distribution will be paid on August 13 to unit holders of record as of August 3, 2010. This hike is in sync with the company’s goal of raising the annual distribution by 3% to 5%, with further upside potential through larger acquisitions.
 
The quarterly distribution also represents an increase of 0.8% from 93.50 cents per unit paid on May 14. On an annualized basis, cash distribution by PAA now totals $3.77 per unit.
 
PAA has had a consistent track record of paying quarterly dividends as well as enhancing unitholder value by increasing the former. The current authorization is not an exception to the case, representing an increase in distribution for the 23rd time during the past 25 quarters.
 
Also, PAA’s annualized dividend yield of 6.13% is higher than its peers, Enterprise Products Partners L.P. (EPD - Analyst Report) and Sunoco Logistics Partners L.P. (SXL - Analyst Report), with respective dividend yields of 6.12% and 5.79%.
 
PAA is in a position of strength with respect to its cash position and cash inflow, primarily supporting the hike in cash distribution. The company recorded cash and cash equivalents of $16 million at the end of first-quarter 2010, more than doubling the $7 million balance at first-quarter 2009-end. Cash flow from operations was a robust $391 million during first-quarter 2010, substantially higher than $18 million recorded in the fourth quarter of 2009.
 
In a separate development on July 14, PAA also completed a public offering of $400 million of 3.95% Senior Notes due Sept 15, 2015, at an offer price of $99.889. Net proceeds of $396 million raised from these notes will be used to repay outstanding debt under the Partnership's credit facilities.
 
PAA expects a net income of $530 million for fiscal year 2010. The Zacks Consensus Estimate for the second quarter of 2010 is earnings of 57 cents per share. For the full year, the Zacks Consensus Estimate is earnings of $2.79 per share.
 
Delaware-based limited partnership, PAA is one of the largest midstream crude oil companies in North America, having extensive network of pipeline transportation, terminalling, storage and gathering assets in key oil-producing basins and transportation corridors, and at major market hubs in the United States and Canada .
 
PAA 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. The quantitative Zacks #3 Rank for the company indicates no clear directional pressure on the shares over the near term.

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