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Plains All American Trims Distribution, Simplifies Operation


Trades from $3

Plains All American Pipeline, L.P. (PAA - Analyst Report) announced that its board of directors has declared a 21% reduction in the quarterly cash distribution for the third quarter of 2016, bringing the annualized payout to $2.20 per share. The annual yield on the distribution is 7%.

The new quarterly distribution is 55 cents per share, while the previous quarter's distribution was of 70 cents per share.The new distribution will be paid on Nov 14, 2016, to shareholders of record as of Oct 31, 2016.

Plains All American’s reduction in its quarterly cash distribution is consistent with its intention to simplify the capital structure and better align its interests with those of its unitholders. This intention was announced in early July.

Investors were not impressed with the decision to trim distribution. Hence, the units of the partnership dropped 2.4% in the last two trading sessions.


Details of the Simplification

In July, the partnership announced a simplification move. Under the transaction, Plains All American Pipeline bought AAP, an affiliate of its general partner, Plains GP Holdings (PAGP - Snapshot Report) . The buyout will eliminate IDR payments in exchange for 245.5 million Plains All American units and the assumption of $593 million in debt.

Objective of Simplification

The transaction will simplify Plains All American's capital structure and reduce the cost of capital as the partnership will no longer have to pay IDRs to Plains GP. In addition the decision to lower cash distribution by 21% will result in annual cash savings of $320 million, which can be deployed to strengthen the existing businesses.

Zacks Rank & Key Picks

Plains All American Pipeline, L.P. and Plains GP Holdings both carry a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same space include CONE Midstream Partners LP (CNNX - Snapshot Report) and NuStar Energy L.P. (NS - Analyst Report) .

CONE Midstreamhas delivered an average positive earnings surprise of 19.4% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy).You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NuStar Energy, a Zacks Rank #2 stock, has delivered an average positive earnings surprise of 14.8% in the trailing four quarters.

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