This MLP Is Headed for Another Cut

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Energy prices have soared this year. That’s horrible news for us at the pump, but it can benefit us as investors.

Right now, many oil and gas companies are criminally undervalued and offer enticing yields. But not all midstream players are up to our standards.

One such substandard dividend payer is Plains All American Pipeline (Nasdaq: PAA).

Plains All American carries an 8.12% yield and trades at a huge discount. At first glance, this master limited partnership (MLP) might look like a great addition to your portfolio.

We haven’t covered this MLP in years. The last time it showed up on our radar was in 2017, when it earned itself a “D.”

At the time, Plains All American’s distributable cash flow (DCF) – the gauge we use to measure an MLP’s ability to pay its distribution (MLPs pay distributions, not dividends) – was barely enough to cover the company’s payout to shareholders.

In 2021, Plains All American’s DCF was $1.66 billion. That was down from $1.88 billion in 2020 but more than enough for Plains All American to pay out the $715 million in distributions owed to shareholders in 2021. Looking ahead, DCF for 2022 is estimated to come in at $1.75 billion, which is an improvement… but only a slight one.

The company was able to improve these margins through a series of distribution cuts.

In fact, it seems like Plains All American doesn’t know how to stop cutting its distribution.

Chart: Plains All American's Falling Distribution
In 2020, Plain All American halved its distribution – just like it had done a few years prior.

As it stands, despite the positive landscape in the energy sector, I don’t see Plains All American restoring its distribution to its former glory.

If you’re looking for high-yielding companies trading at a discount in the oil and gas market, it’s probably wise to skip Plains All American for now.

Dividend Safety Rating: F

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Good investing,


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