Plains All-American Pipeline

01/09/2015 7:00 am EST

Focus: STOCKS

Roger Conrad

Founder and Chief Editor, Capitalist Times

Energy midstream stocks have been hit nearly as hard as producers by crashing oil prices. That's justifiable for smaller and more leveraged fare, suggests Roger Conrad, editor of Conrad's Utility Investor.

But when it comes to best-in-class plays like Plains All-American Pipeline (PAA), price weakness is a golden opportunity for patient income-focused investors to build positions.

Plains owns and operates more than 18,000 miles of pipelines and 120 million barrels of storage capacity for oil (75% cash flow), natural gas liquids (20%), and natural gas (5%).

Its network links the richest energy basins in North America, from the Bakken and Niobrara in the upper Midwest and Rocky Mountains to the Eagle Ford Shale and Permian Basin of Texas and the Southwest. And its customer base is as diverse as it is blue chip.

Finances are as conservative as any MLPs, with debt just 38.4% of assets. The conservative payout policy has retained 20% of cash flow over the past 12 years.

That's an ideal position from which to continue construction and acquisitions of new fee-based assets, with cash flow locked in under long-term contracts with strong companies.

The partnership will end 2014 having invested $2.05 billion more in network, underpinning management’s preliminary 2015 guidance of 11% higher cash flow and 7 to 10% distribution growth.

Third quarter 2014 was the 51st reporting period in a row in which the partnership met or beat management’s guidance. The units yield more than 5%. Buy Plains all the way up to 57.

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