Plains GP Holdings (PAGP) — the general partner of Plains All-American Pipeline (PAA) — is the latest addition to our "High Yield" energy list, explains Elliott Gue, editor of Energy & Income Advisor.

Already a member of the Model Portfolio, the company’s primary asset is a dominant slice of pipeline Plains All-American Pipeline, a master limited partnership.

The shares are up a bit over 20 percent year to date, basically tracking a 20.8 percent dividend increase announced earlier this month. And we expect Q1 results and accompanying guidance to support another sizable boost, very likely later this year.

Plains is among the more volume-sensitive of midstream companies. And from all indications, the recovery of North American output of oil and gas is still happening in a more measured way than has been the case during previous energy cycles.

Plains, however, has adapted its financial policies well to the current environment. And as a result, the company is more than capable of supporting both payout increases and aggressive deleveraging of its balance sheet, even if its system volumes take longer to recover to pre-pandemic rates than currently expected.

Credit rater Fitch affirmed Plains’ investment grade BBB- rating with a stable outlook following the dividend increase announcement. The rater cited the company’s focus on the Permian Basin, the strongest shale oil and gas production area in the US. And it noted substantial progress cutting debt the past couple years, as well as increased reliance on fee-based contracts with minimum volume commitments to stabilize cash flows.

Shares continue to trade at less than half our highest recommended entry point of $26.50. That price reflects our expectation of a much higher dividend for Plains the next few years.

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