PAA - Plains All American Pipeline, L.P.

NYSE - Nasdaq Real Time Price. Currency in USD
-0.12 (-0.74%)
As of 1:07PM EST. Market open.
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Previous Close16.28
Bid16.15 x 4000
Ask16.16 x 4000
Day's Range16.13 - 16.41
52 Week Range15.57 - 25.27
Avg. Volume4,392,790
Market Cap11.765B
Beta (5Y Monthly)1.04
PE Ratio (TTM)6.10
EPS (TTM)2.65
Earnings DateMay 04, 2020 - May 10, 2020
Forward Dividend & Yield1.44 (8.85%)
Ex-Dividend DateJan 29, 2020
1y Target Est22.79
  • 3 MLPs and a Rich ETF to Buy for Excellent Portfolio Padding

    3 MLPs and a Rich ETF to Buy for Excellent Portfolio Padding

    With some of the biggest dividends of the stock market MLP partnerships are tempting, but you have to know how to get paid without getting burned.Partnerships are all about paying stockholders to own them. The whole structure of a partnership is set up to pass through profits right to their owners without imposing corporate income tax costs. Investors are already paying regular income taxes on their dividend income.Partnerships come in a variety of structures that include limited partnerships (LPs), master limited partnerships (MLPs), general partnerships (GPs) and limited liability companies (LLCs). For my purposes I tend to refer to all of them as publicly traded partnerships (PTPs) or just good old partnerships.InvestorPlace - Stock Market News, Stock Advice & Trading TipsPartnerships have been around in various forms for many years and exist not just in the U.S. market, but in an increasing number of other nations and tax jurisdictions. But it's been the U.S. that's been the biggest market for these companies thanks to a massive tax reformation that took place in 1986.Prior to 1986, partnerships were operating wildly in the U.S. That was thanks to out-of-this-world effective income tax rates for individuals that topped 70% and a loophole in the U.S. tax code. This loophole meant that partnerships could be structured to generate large amounts of tax losses which could then be used not just to offset current dividend income, but also offset active income including salaries and bonuses.Tax reform legislation changed the code for partnerships and all other pass-through investments. As a result, losses can offset passive investment income.This brought carnage for those gaming the system prior to the tax reforms. And on top of that, the petrol industry further soured investors that weren't prepared for the changes. A Real PartnershipLet's move forward to our current market. Partnerships have continued to mature and expand, resulting in a great opportunity for investors seeking high dividends from solid cash-generating assets.The industries that fit the bill for partnerships include a variety of businesses involved in energy production, processing and distribution as well as other major capital asset businesses including infrastructure and transportation.Energy of course continues to be the biggest part of the U.S. partnership market. This means that you need to be careful not to be too invested -- and thus exposed to a potential fall in crude oil, natural gas or coal. Such falls can have quite dire consequences for cash flows, dividends and stock prices.Partnerships have devastated too many investors, tempting them with super high dividends and then succumbing to market woes. How bad can it be? When a partnership goes under it results in suspended or eliminated dividends, or even worse, bankruptcy.Partnerships are just like any other stocks that pay you to own them. Each of them has to prove how they're going to continue to be profitable with market downturns including the current downdraft of lower crude oil prices.And then they have to prove how each will be able to continue to finance their debt. Taxes Get Paid One Way or AnotherBefore I get to some of my favored partnerships, I need to go through how the taxes work on these partnerships.As noted above, partnerships are structured as pass-through investments. Partnerships earn profits and then pass them through to pay shareholders. That process happens before the partnership pays federal or state taxes.This helps avoid the dreaded double taxation challenge that impacts dividends paid by ordinary common stocks. But it comes with some additional benefits as well as some pitfalls.To start, let's look at the benefits. Not only do you as an investor in a PTP get paid more by not having the PTP pay taxes before you get your cut, but the PTP gets to also pass through depreciation and other costs which is listed as return of capital.The result is that for the dividends paid by PTPs, much of the cash is actually deemed as return of capital and not actual earned income. This means that investors aren't liable for income taxes on much -- or in some cases all -- of the dividend income.But the return of capital then must be used to reduce your cost basis for your investment in the PTPs. So, when you sell, you'll pay taxes on the capital gains that you've had. But you won't have to pay until you sell. So, at worst, you'll defer your tax bills and perhaps, just maybe, you might pay at a lower tax rate for the gains.However, there is a hidden benefit here. If you die before selling, the shares' cost basis is reset to the current market, so the tax bill goes to nill. But of course you have to die to get this benefit, so there is some cost. Partnerships and Retirement AccountsOne more limitation concerns qualified retirement accounts that hold partnerships. IRAs, SEPs and other plans can hold PTPs, but these are not the most tax-efficient accounts to get the full tax benefits of the partnership structure.And if you own too many of these PTPs inside a qualified account you could owe taxes as unrelated business taxable income (UBTI). The tax code establishes that somebody will eventually have to pay taxes on income, even income generated by partnerships.This means that since most income paid by a PTP is return of capital, UBTI limits won't kick in for the vast majority of the dividend income paid by partnerships. K-1s Are OKPTPs don't pay any tax at the corporate level on qualified activities. Instead, quarterly distributions are passed directly to unitholders. (If you're unfamiliar, a unitholder is an investor who owns one or more units in an MLP or investment trust). Investors pay individual taxes on their distributions. But PTP distributions are highly tax-advantaged and offer a significant tax shield.Because many PTP distributions aren't dividends, unitholders don't get a 1099 form at tax time. Unitholders receive a K-1, a standard form typically mailed in February.There are some big tax benefits to owning PTPs. Specifically, due to depreciation allowance, 80%-90% of the distribution you receive from a typical MLP is considered a return of capital by the IRS. You don't pay taxes immediately on this portion of the distribution. Instead, return of capital payments reduce your cost basis in the particular PTP. You're not taxed on the return of capital until you sell the units, which means, at worst, that you get to defer taxes for years to come.And there are other ways to invest in PTPs while completely avoiding these tax considerations. There are exchange-traded funds and closed-end funds which invest in PTPs. The benefit of buying these funds is that all of the K-1 forms and cost basis calculations are handled by the fund manager, and fund holders simply receive a 1099 at tax time.In other words, all the income passed through from the PTPs held in the fund is considered dividend income. You pay taxes on these distributions as you would for any other dividends. And funds help avoid a rare potential additional tax on some qualified investment accounts and plans, unrelated business tax income (UBTI). 3 MLPs and an ETF AlternativeMLPs in the U.S. are largely focused on the petroleum market. And the market for crude and natural gas has been facing challenges since summer 2019. After a bit of a respite in December and early January, the market has taken it on the chin again thanks to the fallout from the coronavirus (2019 n-CoV).The argument goes that as the virus leads to less production of goods and services as well as restricted travel in Asia, that demand for crude oil and natural gas will drop, depressing demand and resulting in lower prices.That said, China only buys 200,000 barrels per day (bpd) of crude from the U.S. -- but it does make up 13% of global consumption of crude.But the key to remember is that MLPs in the U.S. petroleum market are largely focused not on production, but on pipes, terminals and storage facilities. These are less at risk for oil and gas pricing than producers or refiners.But pipeline MLPs do have to deal with counterparty risks. This means that they have to manage the risks that their contracted producers and contracted consumers of petroleum will be able to stand up to their contracts. Because if they don't, then pipes go idle and so too shall cash flows for revenues.The three MLP pipelines below each have been in the markets through thick and thin. So, they have proven their ability to deal with counterparty risk. MLPs to Buy: Enterprise Products Partners (EPD)Source: Chart by Bloomberg Enterprise Products Partners (NYSE:EPD) has a vast network of natural gas, crude oil and other petroleum-related pipelines. Despite the challenges in the markets, revenues are still ample. EPD brought in $8 billion for the recent quarter.It is efficient in its operations, with operating margins running at a fat 18.5% which in turn works to deliver a return on equity of 20.1%. With ample cash and debts manageable at 46.2% of assets, Enterprise is a capable company.And it is a value as the shares are at a mere 2.4 times book value and only 1.8 times trailing revenues.The dividend distribution is running at 44.5 cents for a yield of 6.8%. And those distributions continue to rise by an average annual rate of 4% over the past five years.Investing in quality MLPs is all about buying and owning for the longer term for income and gradual gains. And Enterprise has proven to be a longer-term performer.Source: Chart by Bloomberg The shares have returned 197.7% over the past trailing ten years for an average annual equivalent return of 11.5% per year. Plains GP Holdings (PAGP)Source: Chart by Bloomberg Plains GP Holdings (NYSE:PAGP) is the general partner of Plains All American Pipeline (NYSE:PAA). As the general partner it has the controlling interest and ownership in Plains All American. And PAA has a massive collection of terminals, storage and pipe for crude oil, natural gas and refined products.Plus it is one of the primary pipelines for core U.S. shale production in the Permian Basin.Revenue is strong with the most recent quarter showing over $9 billion. And that revenue has been gaining over the past five year by a compound annual growth rate (CAGR) of 9.5%.The operating margin for the general partner is more modest at 5.9%, but the return on shareholder's equity is ample at 16.5%. And cash is on hand and debts are low at only 31.9% of assets.What's more, the stock is a big bargain as it is valued at a 90% discount to the trailing revenues of the company.Source: Chart by Bloomberg Given the focus on crude oil from the Permian, the stock market hasn't been too keen to provide a better valuation for the share. This shows in the price-to-revenue ratio of 0.1.And the shares are newer to the public market, so the trailing four years have only resulted in a return of 13.1%.The distributions are running at 36 cents per share for a yield of 8.3%. And the distributions are up by 20% over the past year. All of the distributions are fully shielded from current income tax liability, making them worth even more. Magellan Midstream Partners (MMP)Source: Chart by Bloomberg Refined products are where there are better stories. Marine fuel standard changes are providing opportunities for pipes, storage and marine terminals.And that also extends to diesel, gasoline and jet fuels.This is why Magellan Midstream Partners (NYSE:MMP) is a prime pick for me. MMP calls Tulsa, Oklahoma home, and it deals with refined products. Revenues continue to climb with the compound annual growth rate over the past five years running at 7.3%. And operating margins are a whopping 44.1%, which in turn delivers a return on equity of 40.2%.Source: Chart by Bloomberg Dividends provide a yield of 6.8% and the distributions are rising, with the five-year annual average running at 9.1%. And MMP has returned a positive 373.3% over the past ten years for an average annual equivalent return of 16.8%. ETF Alternative: Alerian MLP (AMLP)Source: Chart by Bloomberg For investors wanting to gain the income and longer-term growth of MLPs without K-1 tax forms, there is the Alerian MLP ETF (NYSEARCA:AMLP). This ETF has the three MLPs as primary synthetic holdings in the fund.The ETF hasn't been gaining investor attention because the MLP space has been challenged. This means AMLP is a bit of a bargain.But for those that do like to buy a bargain, you'll be well paid. The dividend is running at 19.5 cents for a yield of 9.5%. And this ETF works for those seeking to avoid K-1s.Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps -- and into safe, top-performing income investments. Neil's new income program is a cash-generating machine … one that can help you collect $208 every day the market's open. Neil does not have any holdings in the securities mentioned above. More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 7 Utility Stocks to Buy That Offer Juicy Dividends * 10 Gold and Silver Stocks to Profit Off 2020's Fear Trade * 3 Top Companies That Should Be More Careful With Your Data The post 3 MLPs and a Rich ETF to Buy for Excellent Portfolio Padding appeared first on InvestorPlace.

  • Thomson Reuters StreetEvents

    Edited Transcript of PAA earnings conference call or presentation 4-Feb-20 10:00pm GMT

    Q4 2019 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call

  • Plains All American (PAA) Q4 Earnings & Sales Beat Estimates

    Plains All American (PAA) Q4 Earnings & Sales Beat Estimates

    Plains All American's (PAA) Q4 earnings and revenues beat estimates. The firm continues to streamline its asset portfolio through acquisitions, divestitures and the addition of capital projects.

  • Atmos Energy (ATO) Q1 Earnings Lag Estimates, Sales Drop Y/Y

    Atmos Energy (ATO) Q1 Earnings Lag Estimates, Sales Drop Y/Y

    Atmos Energy's (ATO) fiscal Q1 earnings are lower than expected. However, addition of customers in the distribution business and new rates are going to boost its performance.

  • Business Wire

    Plains All American Pipeline, L.P. and Plains GP Holdings Report Fourth-Quarter and Full-Year 2019 Results

    Plains All American Pipeline, L.P. (NYSE: PAA) and Plains GP Holdings (NYSE: PAGP) today reported fourth-quarter and full-year 2019 results.

  • PR Newswire

    Saddlehorn Pipeline Welcomes Additional Owner

    Saddlehorn Pipeline Company, LLC ("Saddlehorn") announced today that Black Diamond Gathering LLC ("Black Diamond"), through its majority owner Noble Midstream Partners LP (NASDAQ: NBLX) ("NBLX"), has purchased a 20% membership interest in Saddlehorn for $155 million effective Feb. 1, 2020. As previously announced, an option had been granted to Black Diamond in conjunction with recent volume commitments to the pipeline.

  • What Lies Ahead for National Oilwell (NOV) in Q4 Earnings?

    What Lies Ahead for National Oilwell (NOV) in Q4 Earnings?

    National Oilwell's (NOV) Q4 EBITDA margins from the Rig Technology unit are expected to be soft, primarily due to an adverse business mix and deferred project completions.

  • What Lies Ahead for Suncor Energy (SU) in Q4 Earnings?

    What Lies Ahead for Suncor Energy (SU) in Q4 Earnings?

    Suncor Energy's (SU) persistently weak operating earnings from the downstream unit due to lower refining margins might dampen Q4 results.

  • Reuters

    Enterprise Products expects to complete part of Wink-to-Webster crude pipeline by year-end

    Enterprise Products Partners LP said on Thursday it will own a 29% undivided joint interest in the Wink-to-Webster crude pipeline system and construction on the segment to Webster, Texas, is expected to be completed by the end of 2020. The company said its Midland‐to‐ECHO 3 crude pipeline, which will be a part of the Wink-to-Webster system, is expected to be in service in the third quarter of this year. "I don't expect more than 200,000 to 300,000 barrels a day to flow until the Webster leg is complete," Jim Teague, co-chief executive officer, said on its quarterly earnings call.

  • What's Looming on Helmerich & Payne (HP) in Q1 Earnings?

    What's Looming on Helmerich & Payne (HP) in Q1 Earnings?

    Helmerich & Payne's (HP) cutting-edge FlexRigs is much in demand and commands strong daily rate margins. This, in turn, bodes well for the segmental profits in the upcoming quarterly results.

  • What are in store for Plains All American (PAA) Q4 Earnings?

    What are in store for Plains All American (PAA) Q4 Earnings?

    Plains All American's (PAA) fourth-quarter earnings, set to be reported on Feb 4, are likely to gain from systematic investments to develop new pipeline projects & expand existing pipelines.

  • Is a Beat in Store for Chevron (CVX) This Earnings Season?

    Is a Beat in Store for Chevron (CVX) This Earnings Season?

    The year-over-year rise in commodity price realizations is likely to have enhanced Chevron's (CVX) upstream earnings and cash flows.

  • Delek Logistics Partners (DKL) Hikes Cash Distribution by 1%

    Delek Logistics Partners (DKL) Hikes Cash Distribution by 1%

    Delek Logistics Partners (DKL) will now pay a quarterly cash distribution of 88.5 cents per share, up from 88 cents paid out in the previous quarter.

  • What Awaits Royal Dutch Shell (RDS.A) This Earnings Season?

    What Awaits Royal Dutch Shell (RDS.A) This Earnings Season?

    Shell (RDS.A) expects its fourth-quarter LNG liquefaction volumes to expand to 8.8-9.4 million tonnes from its previous year's quarterly output of 8.78 million tonnes.

  • Proposed Memphis-Miss. pipeline could have $60M economic impact during construction
    American City Business Journals

    Proposed Memphis-Miss. pipeline could have $60M economic impact during construction

    A proposed crude oil pipeline stretching roughly 45 miles from Memphis to Marshall County, Mississippi, could break ground in 2021 and have a $60 million economic impact during construction phase.

  • JPMorgan: 3 High-Yield Dividend Stocks to Snap Up Now

    JPMorgan: 3 High-Yield Dividend Stocks to Snap Up Now

    Growth and dividends are the sure-fire ways to find profit in your investments. The hard part is finding stocks that combine the two. It’s not that they are necessarily incompatible – rather, it is just that the highest growth stocks tend to achieve their appreciation by plowing profits directly back into the company. Dividend payments dilute this, by paying some or all of the profits back to investors. Still, there are investment sectors where growth and dividends walk hand-in-hand.The natural place to look is in sectors with high cash flows and essential products. Energy comes to mind. Without energy, our modern digital economy will grind to a quick halt. Energy companies – whether they extract oil from the ground or generate electricity for commercial use – earn a profit buy fueling modern life. Investors can piggyback on that, drawing profits from the sector’s cash flow.Investment bank JPMorgan released a special report on the North American energy industry, emphasizing just these attributes – the rising production, the high cash flow, and the fundamental strength of the industry to survive a prolonged period of low prices. On US natural gas production, JPM “sees ~3% US onshore growth in 2020, driven largely by [Permian basin] production,” while noting that, for crude oil, “[Texas’] Midland remains the most economic shale play in the US as breakevens have drifted lower over the last year, largely due to increased oil pipeline capacity.”JPM’s final point, on increased pipeline capacity, brings us to the midstream sector, a vital component of the energy industry. Midstream companies move the oil and gas that extraction companies pull out of the ground; without the midstream segment, fuel would not reach the customers. JPMorgan sees room in midstream for investment activity, saying, “We believe yield-hungry investors will continue to gravitate towards quality midstreamers with strong business models and corporate governance.”In this article, we’ll look at three JPMorgan dividend stock recommendations from the energy sector. As you can see from the TipRanks Stock Comparison tool, all three offer excellent dividend yields, affordable cost of entry, and a genuine upside potential. Let's take a closer look.Plains All American Pipeline (PAA)Start with Plains All American, a pipeline company based in Houston, Texas. The company operates across much of North America, with oil pipelines across the US, natural gas storage facilities in Michigan and Louisiana, and liquid petroleum gas facilities in Canada. The company owns and operates over 17,000 miles of crude oil and gas pipelines, as well as rail, trucking, and river transport assets, along with 109 million barrels of storage capacity.In Q3 last year, the most recent quarterly report on record, PAA showed an adjusted EPS of 52 cents, beating the expectation by an impressive 33%. That number was also up 20% year-over-year. Revenues, at $7.89 billion, were in line with expectations, but down 10% year-over-year. The company’s Transportation, Facilities, and Supply and Logistics segments all showed yoy increases. Forward guidance predicts full year 2019 earnings at $2.35 – investors will have to wait until February 4 for the Q4 and full year numbers to find out.PAA does have an immediate treat for shareholders, however. The company pays out a dividend of 36 cents quarterly, or $1.44 annually per share. This translates to an impressive yield of 7.75%. Considering that the average dividend yield among S&P 500 listed companies is only 2%, this gives PAA shares a strong return on cash invested. The payout ratio, a comparison of the dividend with the earnings, stands at 69%, indicating that the dividend is easily sustainable at current rates.JPMorgan analyst Jeremy Tonet reviewed this stock and he's clearly bullish. In his comments, the 4-star analyst said, “We see PAA as well-positioned for pipe competition with lower leverage and S&L expectations, as well as JV strategic partner alignment. As such, we favor PAA's Permian torque & solid project backlog.”Tonet reiterated his Buy rating on PAA alongside a $25 price target, which indicates confidence in a 34% upside potential. (To watch Tonet’s track record, click here)PAA’s Strong Buy consensus rating is based on 14 reviews – including 11 Buys against just 3 Holds. The stock sells for an affordable price of $18.59, and the $22.79 average price target suggests an upside of 22%. (See Plains All American’s stock analysis at TipRanks)Targa Resources Corporation (TRGP)Targa is a midstream company, like PAA above. These are the companies that provide the infrastructure needed to get oil from the wellheads to markets. Targa operates mainly in the states Texas-New Mexico-Oklahoma-Louisiana, with over 28,000 miles of natural gas pipelines, moving over 3.9 trillion cubic feet of gas and 415,000 barrels of natural gas liquids.Late last year, Targa sold off its West Texas Permian oil gathering assets, in a move that allows the company to focus on pipeline operations. The move was intended to compensate for high overhead and somewhat disappointing Q3 earnings. TRGP missed badly on revenues, with the $1.9 billion reported coming in well below the $2.17 billion forecast. Worse, from an investor perspective, the company gave forward guidance on capex for 2020 of $1.3 billion, higher than expected.With all of that, however, TRGP maintained its hefty dividend. The yield, at over 9%, is 4.5x the average on the S&P, and the annual payment is $3.64. This comes out to 91 cents paid out per share quarterly. Targa has held that dividend steady since 2H15, providing investors with a reliable, high-yield income stream.JPMorgan's Jeremy Tonet, quoted above, also examined Targa in his energy industry report. Seeing the company as a Buy proposition, Tonet wrote, “Targa possesses top tier leverage to liquids rich production and downstream NGL logistics, with attractive exposure to the Permian. While TRGP's commodity price exposure represents a double-edged sword, we believe executing on the current portfolio of attractive NGL logistics projects will deliver the 'pig through the python' and drive de-leveraging and positive re-rating.”Tonet gave TRGP a $49 price target, implying an upside of 22%. (To watch Tonet’s track record, click here)Targa has received 10 recent analyst reviews, and the split reflects both the company’s strong position and worries over the Q3 revenues. The stock’s 4 Buys, 5 Holds, and 1 Sell rating combine to give a Moderate Buy consensus view. Shares are selling for $40.22, and the $42.44 average price target indicates a 5.5% upside potential. (See Targa’s stock analysis at TipRanks)Williams Companies (WMB)Tulsa-based Williams is a utility provider, dealing mainly in natural gas processing and transport. The company also owns assets in the petroleum industry and in electricity generation. Williams handles – through provision or transport – as much as 30% of the natural gas used daily in the US. Customers range from residential to commercial to power generation companies.WMB was showing mixed results in 2H19. For the third quarter, the company’s revenues missed the forecast by 4.3%, coming in at $2 billion. Worse, that performance was also 13% below the year-ago number. Earnings, however, rose, and the 26 cent EPS reported was 8.3% better than expected. And even better, for income-minded dividend investors, distributable cash flows rose 8% to $822 million.Williams uses its cash flow to fund a 6.6% dividend. That yield is impressive – it’s 3.3x the S&P average – even though the absolute number is low. The quarterly payment of 38 cents annualizes to $1.52 per share. The company has been slowly – but steadily – increasing the dividend since 2017.Once again, we have a review from Jeremy Tonet for this stock. Tonet says of WMB, “Williams owns one of the largest integrated natgas infrastructure positions in North America... We believe that WMB as a single security, IG-rated energy infrastructure c-corp with a strong yield will attract significant generalist investor interest.”Tonet’s Buy rating is backed by a $28 price target, suggesting a strong 22% upside potential. (To watch Tonet’s track record, click here)Overall, WMB shares have a Moderate Buy from the analyst consensus, based on 5 Buys and 3 Holds recently assigned. The stock sells for $23.01, and the $30.71 average price target indicates a premium potential of 33% from that selling price. (See Williams’ stock analysis at TipRanks)

  • NextEra Energy Partners (NEP) Q4 Earnings: What's in Store?

    NextEra Energy Partners (NEP) Q4 Earnings: What's in Store?

    NextEra Energy Partners (NEP) is going to report its fourth-quarter 2019 results on Jan 24.

  • MoneyShow

    Top Picks 2020- Plains All American Pipelines LP PAA

    Plains All American Pipelines LP (PAA) -- a top pick for aggressive investors -- is an energy midstream services company that should provide a strong move up in 2020, asserts income expert Tim Plaehn, editor of The Dividend Hunter.

  • Reuters

    Plains crude pipeline cancels rates at points originating in Louisiana, Mississippi

    Plains All American Pipeline has cancelled tariffs on its Capline crude oil pipeline for barrels previously originating at St. James, Louisiana, and Liberty, Mississippi, the midstream company said in a regulatory filing on Thursday. * The St. James and Liberty origination points in Plains's reversed Capline crude pipeline system have been taken out of service and are no longer in interstate commerce, according to the filing with the Federal Energy Regulatory Commission (FERC).

  • 6 Guru Stocks With Negative Performances

    6 Guru Stocks With Negative Performances

    Icahn Enterprises makes the list Continue reading...

  • EnLink’s Dividend Cut Doesn’t Go Nearly Far Enough

    EnLink’s Dividend Cut Doesn’t Go Nearly Far Enough

    (Bloomberg Opinion) -- The language around a dividend cut is necessarily delicate. Hence, EnLink Midstream LLC characterizes the 34% drop investors are about to experience as a “resetting.” The problem is EnLink has taken the delicacy thing a bit too far — and thereby garbled the message.To say this distribution cut was expected would be something of an understatement.EnLink’s problem is a familiar one among pipeline operators. Growth across much of its business has slowed, bringing high leverage and calls on its cash flow into sharp focus. New guidance suggests Ebitda will creep up a little in 2020. The old distribution would have taken half of that; interest and payments on preferreds roughly another third. That wouldn’t leave much for capital expenditure or cutting debt, which stood at 4.2 times adjusted Ebitda at the end of September (more if you layer on the preferreds).The new distribution saves just shy of $190 million a year, enabling EnLink to generate $10-$70 million of free cash flow after capex and distributions in 2020, according to the company’s own guidance. Here is where, despite EnLink having done the right thing in resetting dividends, it took its delicacy a bit too far.EnLink’s sky-high dividend yield was a signal it was distressed. The way to cure distress is to cut leverage. Even at the high end of guidance, $70 million merely scratches the surface, equivalent to less than 2% of debt outstanding at the end of September. EnLink’s own guidance suggests leverage will barely drop (and may even rise a little) this year.It is clear that, rather than diverting as much cash as possible to paying off debt, EnLink hopes to ultimately grow its way to lower leverage. On its call Thursday morning, management emphasized the first call on excess cash flow would be investing in new projects. This is why, oddly and as laid out toward the back of the latest slide deck, EnLink’s guidance is for free cash flow to actually drop in the high case for Ebitda versus the low case.The messaging here is upside down. Promises of growth, once a strong currency in energy circles, have been debased over the past five years. EnLink’s own guidance for “modest” growth in Ebitda actually encompasses $75 million of promised cost savings, which tells you how much pressure is bearing down on the underlying business.There’s a lot of history to learn from here. Back in late 2015, Kinder Morgan Inc. slashed its dividend by roughly three quarters to deal with its debt, presaging the great resetting that was to come across the midstream sector. Even then, though, Kinder tried to soften the blow by maintaining a robust capex budget centered on growing its way out from under — a budget it had to slash twice in a matter of months as it became clear that wouldn’t fly. Similarly, Plains All American Pipeline LP’s “one and done” convertible issue in early 2016 segued into what one might have called a “two and through” distribution cut — except that another, even bigger cut followed a year later. Both stocks have been dead money for much of the past four years.EnLink could have used this as an opportunity to rip off the band-aid. As it is, the 34% cut leaves the stock yielding about 13%, still at the high end in a troubled sector and looking more stressed than generous. A 65% cut would have taken that yield down to a still-robust 7% and, using the company’s own guidance, resulted in almost $220 million of free cash flow.The problem, of course, is the elephant not quite in the room called the Global Infrastructure Partners term loan. GIP took on a $1 billion loan when it bought 46% of EnLink. That stake is now worth only about $1.2 billion, not much more than the loan balance, which stood at “less than $900 million,” according to an EnLink presentation in late November.It is also serviced by distributions from EnLink (see this column from a couple of months ago for details). And this is perhaps the biggest problem with EnLink’s delicate touch. One of the questions that has dogged EnLink is whether GIP’s loan-servicing needs would trump the imperative of fixing the balance sheet. By my math, assuming a loan balance of just under $900 million, GIP needs a minimum annual payout of roughly $75 million. A 65% cut to EnLink’s distributions, while offering faster direct deleveraging, would have cut GIP’s distribution to less than $90 million — not much more than the bare minimum. At 34%, it gets $168 million.In taking the path of a smaller cut and emphasizing growth, EnLink’s strategy looks more closely aligned with its big, private-equity shareholder than the zeitgeist in the public market. Its own guidance indicates a listless 2020 for the stock, with distributions lower but leverage staying flat. Rewards are backdated to 2021 and beyond. As messages go, that sounds so 2015.To contact the author of this story: Liam Denning at ldenning1@bloomberg.netTo contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • American City Business Journals

    Chairman steps down from top board spot at Houston midstream giant

    The longtime chairman and former CEO of Plains All American Pipeline LP (NYSE: PAA) has finally left his post at the head of the company’s board. Greg Armstrong has been the chairman of Plains All American’s board of directors since 1998. Plains also appointed a new independent director, Lawrence Ziemba.

  • Business Wire

    Plains All American Pipeline, L.P. and Plains GP Holdings Announce Appointment of New Board Member

    Plains All American Pipeline, L.P. (NYSE: PAA) and Plains GP Holdings (NYSE: PAGP) today announced that Lawrence Ziemba has been appointed to serve as an independent member of the Board of Directors of PAA GP Holdings LLC ("GP Holdings"). The GP Holdings Board has responsibility for managing the business and affairs of PAA and PAGP.

  • Business Wire

    Plains All American Pipeline, L.P. and Plains GP Holdings Announce Timing of Fourth-Quarter and Full-Year 2019 Earnings

    Plains All American Pipeline, L.P. (NYSE: PAA) and Plains GP Holdings (NYSE: PAGP) announced they will release fourth-quarter and full-year 2019 earnings after market close on Tuesday, February 4, 2020 and will hold a joint webcast on the same day as follows:

  • Business Wire

    Plains All American Pipeline, L.P. and Plains GP Holdings Announce Distributions

    Plains All American Pipeline, L.P. (NYSE: PAA) and Plains GP Holdings (NYSE: PAGP) today announced their quarterly distributions with respect to the fourth quarter of 2019.