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This Oil MLP Is A Good Buy And Sports A Fat 6.2% Yield

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This article is more than 10 years old.

Looking for a value stock that also pays a nice dividend? Plains All American Pipeline, L.P. (PAA - Analyst Report) is a rare combination of both value and income. This Zacks #1 Rank (strong buy) is trading with a P/E of 13.9 yet it also has a dividend yielding 6.2%.

Plains All American ("PAA") provides transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas related petroleum products ("LPG") in North America.

The company is a master limited partnership (MLP) and handles more than 3 million barrels a day of crude oil, refined products and LPG.

Plains All American Beat Again in the Third Quarter

On November 2, PAA reported third quarter results and surprised on the Zacks Consensus for the 6th straight quarter. Earnings per unit were $1.42 compared to the Zacks Consensus of $1.13. This topped the partnership's own previous guidance.

The partnership made just 70 cents in the year ago period.

The quarter was boosted by strong results from the Supply & Logistics segment which saw profit rise 235% over the third quarter of 2010 due to a combination of higher lease gathering volumes and margins related to high levels of drilling activity in areas that it services. The segment also benefited from the wide WTI/Brent crude spread.

Dividend Increased

PAA declared a quarterly distribution of $0.995 per unit that was payable on November 14. That was 4.7% higher than the year ago payout and also an increase of 1.3% from the distribution that was made in Aug 2011. The yield is now a juicy 6.2%, which bests other MLPs including Sunoco Logistics Partners (SXL) with a yield of 4.7% and Magellan Midstream Partners' (MMP) 5.0% yield.

Outlook for 2011

Given the big beat in the third quarter and overall positive outlook, the partnership increased the mid-point of its 2011 adjusted EBITDA guidance by 26% to $1.5 billion from $1.2 billion. That is also a 40% increase over 2010.

Analysts Bullish About 2011

In just the last 7 days, the 2011 Zacks Consensus has jumped to $4.64 from $4.35 per share. The analysts also expect strong earnings growth in 2011 of 53%.

However, in 2012, the analysts appear to be a bit more cautious. In the last week, the Zacks Consensus has fallen to $4.46 from $4.60, which would be an earnings decline of about 4%. This is something to watch going forward.

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Lots of Value

Shares have been on a tear over the last 3 years and recently hit a new multi-year high.

But there's still value. In addition to a P/E under 15, PAA has a price-to-book of only 1.8. A P/B ratio under 3.0 is usually considered a "value." It also has a steller price-to-sales ratio of just 0.3. A P/S ratio under 1.0 usually indicates a company is undervalued. Additionally, PAA has a solid 1-year return on equity (ROE) if 16.9%.

PAA is the double threat: a big dividend yield but also a value stock.

Tracey Ryniec is the value stock strategist for Zacks.com. She is also the editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

Read the full analyst report on PAA