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Distribution Rate up, Fails to Boost PAA's Price

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Plains All American Pipeline, L.P.’s (PAA - Free Report) unit price continues to follow a fluctuating trend. The partnership’s announcement regarding the increase in quarterly cash distribution, on Oct 1, 2013, failed to boost the unit price. On Oct 2, 2013, the unit price decreased 0.2% to $53.02 from previous day’s closing of $53.13.

On Oct 1, 2013, Plains All American Pipeline announced that it will increase the quarterly cash distribution rate by 2.1% sequentially and 10.6% year over year to 60 cents per unit. The new distribution will be paid on Nov 14, 2013 to unitholders of record as of Nov 1.

The upward revision in cash distribution rate have failed to meet higher expectation of investors, The investors might have aspired for more as Plains All American Pipeline had distributable cash flow of $904 million during the first six months of 2013.

In addition, the current sequential increase in cash distribution rate is lower than the distribution hike in the previous quarter.

We believe that a decline in the distribution rate hike and a discrepancy in the expectation of the quarterly cash distribution rate hike between the investors and the partnership are reflecting on the unit price movement.

The hike in the distribution rate is higher than Plains All American Pipeline’s strategy of increasing the 2013 distribution rate by 9% to 10% year over year. The partnership intends to increase the distribution rate by roughly 10% by Nov, 2014.

Plains All American Pipeline’s strategy of paying regular cash distribution and increasing the same at regular intervals reflect its commitment to enhance long-term value for the unitholders. The partnership has been increasing the distribution rate almost every year since 1999. The partnership increased its quarterly distribution to the limited partners in 36 out of the past 38 quarters and consecutively in each of the last 18 quarters.

Plains All American Pipeline plans to invest $1.6 billion in 2013 for several projects including the Cactus pipeline and the Western Oklahoma Extension pipeline projects. These initiatives would add to the partnership’s profitability in the long run, which will in turn enable it to provide higher returns to its unitholders.

Plains All American Pipeline currently has a Zacks Rank #3 (Hold). However, other stocks from the industry that are presently performing well include Enbridge Energy Management LLC (EEQ - Free Report) with a Zacks Rank #1 (Strong Buy), and Kinder Morgan Energy Partners, L.P. and Magellan Midstream Partners LP (MMP - Free Report) , both with a Zacks Rank #2 (Buy).

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