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Yahoo
10 hours ago
- Business
- Yahoo
A $3.8 Billion Deal Is Making These Ultra-High-Yielding Dividend Stocks Even Safer
Plains All American Pipeline is selling its Canadian NGL business. The deal will lower its earnings volatility and leverage ratio. It will provide the MLP with a huge windfall to allocate in growing shareholder value. 10 stocks we like better than Plains All American Pipeline › Dividend sustainability has been an issue for master limited partnership (MLP) Plains All American Pipeline (NASDAQ: PAA) and its general partner (GP) Plains GP Holdings (NASDAQ: PAGP) over the years. The MLP has cut its distribution several times over the years due to earnings volatility and balance sheet issues, causing its GP to cut its dividend. However, Plains All American Pipeline has taken several steps to reduce its earnings volatility and leverage ratio. Those actions have paid big dividends for investors, as the MLP has steadily rebuilt its payment level. That payout -- which yields over 8% at PAA and is more than 7.5% at PAGP -- is now growing even stronger after the oil pipeline company agreed to sell its Canadian natural gas liquids (NGLs) business for nearly $3.8 billion. It makes these high-yielding dividend stocks a lot safer for income-seeking investors. Plains All American has agreed to sell nearly all of its NGL business to Keyera for about 5.15 billion Canadian dollars (US$3.8 billion). It will retain most of its U.S. NGL business and all its crude oil assets in Canada. The deal has several benefits, including: Sharpen its focus: Plains will become even more of a pure-play crude oil midstream company. Reduce earnings volatility: The Canadian NGL business had direct exposure to commodity price volatility, which caused fluctuations in Plains' earnings. A strong exit point: The MLP is selling the business at 13 times free cash flow, which is a strong valuation. Enhanced free cash flow: Plains will produce more excess free cash flow in the future due to lower capital investments and taxes related to the Canadian NGL business. Increased financial flexibility: The MLP expects to net about $3 billion in proceeds from the sale after taxes, transaction expenses, and a potential one-time special distribution to investors to offset their tax liability related to the sale. Following the transaction, Plains All American Pipeline will produce more durable cash flows to support its distribution payments. It expects to get 85% of its earnings from predictable fee-for-service agreements, up from 80% before the deal. It will also have an even stronger financial profile. The MLP expects its leverage ratio to be at or below the low end of its 3.25-3.75 times target range (it was 3.3x at the end of the first quarter). Plains can use its enhanced financial flexibility to make bolt-on acquisitions, repurchase preferred units, and buy back common units. The sale of Plains' Canadian NGL business continues its transformational strategy to enhance its free cash flow and reduce its leverage ratio so that it can pay a sustainable, growing distribution. This strategy has delivered results. The company has generated a cumulative $8.3 billion of adjusted free cash flow since 2021, which has enabled it to repay debt and grow its distribution. Its leverage ratio has declined by 31%, while the MLP has grown its payout at a 21% compound annual rate. Plains had planned to continue increasing its payout at a healthy rate until it reached its target payout level (about 1.6 times coverage). With its coverage level expected to be around 1.75x this year, Plains estimated that it could increase its payout at around a 10% annual rate in 2026 and beyond before eventually hitting its targeted payout level. While the sale of its Canadian assets will initially cause it to generate less free cash flow this year, it can offset the lost income by wisely allocating the proceeds from the sale to increase its free cash flow per unit. The MLP has a strong record of making accretive investments. For example, earlier this year, Plains bought Ironwood Midstream Energy, Medallion Midstream's Delaware Basin crude oil gathering business, and the remaining 50% interest in the Midway Pipeline for a combined $670 million. In addition, the MLP spent $330 million to repurchase 18% of its Series A Preferred Units. These transactions boosted its free cash flow, enabling Plains to hike its distribution payment by 20%. Plains All American Pipeline has taken significant strides to enhance the durability of its cash flows while reducing its leverage ratio. As a result, its high-yielding payout is on a much more sustainable level, which has also enhanced the safety of Plains GP Holdings' dividend. Because of that, they're attractive options for those seeking a sustainable and steadily rising income stream. Plains All American is best for those desiring a higher yield and are comfortable dealing with the potential tax complications of the Schedule K-1 federal tax form the MLP sends its investors each year. Meanwhile, Plains GP Holdings is best for those seeking ease in filing their taxes with a Form 1099-DIV. Before you buy stock in Plains All American Pipeline, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Plains All American Pipeline wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $659,171!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $891,722!* Now, it's worth noting Stock Advisor's total average return is 995% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Keyera. The Motley Fool has a disclosure policy. A $3.8 Billion Deal Is Making These Ultra-High-Yielding Dividend Stocks Even Safer was originally published by The Motley Fool
Yahoo
2 days ago
- Business
- Yahoo
Plains All American Executes Definitive Agreements for $3.75 Billion Sale of NGL Business to Keyera
HOUSTON, June 17, 2025 (GLOBE NEWSWIRE) -- Plains All American Pipeline, L.P. (Nasdaq: PAA) and Plains GP Holdings (Nasdaq: PAGP) (collectively, 'Plains') announced today that it has executed definitive agreements with Keyera Corp. (TSX: KEY) ('Keyera') pursuant to which Plains will sell substantially all of its NGL business to Keyera for a total cash consideration of approximately $5.15 Billion CAD ($3.75 Billion USD). The transaction is expected to close in the first quarter of 2026, and is subject to customary closing conditions, including regulatory approvals. As a result of the transaction, Plains will divest its Canadian NGL business but will retain substantially all NGL assets in the United States and will also retain all crude oil assets in Canada. Transaction Benefits Results in premier midstream crude oil 'pure play': Positioned to drive efficient growth and streamlining opportunities More durable cash flow stream: Reduces commodity related EBITDA contribution, seasonality and working capital requirements Attractive valuation: Purchase price represents approximately 13x expected 2025 Distributable Cash Flow (DCF) Enhances free cash flow profile: Pro-forma business expected to generate higher percentage of "excess cash flow" with disproportionately lower capital investments and taxes Provides significant financial flexibility: Creates optionality to redeploy capital and execute existing capital allocation framework in a disciplined manner Capital AllocationProceeds from the transaction are expected to be approximately $3.0 Billion USD net after: 1) taxes 2) transaction expenses and 3) a potential one-time special distribution. The estimated ~$0.35/unit special distribution is intended to offset potential individual tax liabilities associated with the transaction and is subject to Board approval, ultimate tax implications, and successful closing of the transaction. Plains expects to continue executing on its long-term capital allocation framework. Proceeds from the transaction will be prioritized toward: Disciplined bolt-on M&A to extend and expand the crude oil focused portfolio Capital structure optimization including potential repurchases of Series A & Series B Preferred units Opportunistic common unit repurchases 'Today's announcement is a win-win transaction for both Plains and Keyera. Plains is exiting the Canadian NGL business at an attractive valuation while Keyera is receiving highly complementary and critical infrastructure in a strategic market,' said Willie Chiang, Chairman and CEO. 'Successful completion of this transformative transaction advances our efficient growth strategy and establishes Plains as the premier pure play crude oil midstream entity with highly strategic assets linking North American supply to key demand centers. Importantly, the transaction enhances our free cash flow profile and reduces both commodity exposure and working capital requirements into the future. Post-closing our financial framework should be enhanced, with leverage at or below the low-end of our target range, providing significant financial flexibility and allowing us to continue optimizing our crude oil focused asset base in a disciplined manner while increasing return of capital to our unitholders.' Tax ConsiderationsClosing of this transaction is a taxable event that is expected to result in a flow through of taxable income to the holders of PAA common units and impact the taxability of distributions to the holders of PAGP Class A shares. The tax impact on each holder of PAA common units will vary based on their specific tax circumstances, including their individual ownership, previous passive loss limitations where applicable, tax basis and their holding period. We currently estimate that PAA will incur approximately $360 million USD of entity-level taxes payable in Canada associated with the sale of the NGL business and the restructuring of our remaining Canadian crude assets. This is expected to generate a foreign tax credit for PAA common unitholders at close of the transaction that, along with utilization of passive activity loss carry forwards, if any, will offset a significant portion of (and in some cases all of) the taxable gain passed through to individual unitholders. The transaction is anticipated to generate current year earnings and profits for PAGP Class A shareholders and thus PAGP distributions in the tax year in which the transaction closes are expected to be taxed as a dividend versus a return of capital, but the transaction is not estimated to result in a material change in the previous forecast for when routine PAGP distributions shift from being a return of capital to being taxed as dividends or when PAGP will become a taxpaying entity. The tax impacts associated with closing this transaction may be reduced by unrelated acquisitions or investments that also occur in the same tax period this transaction closes, subject to the tax laws in effect at such time. In an effort to offset a significant portion of the anticipated tax impacts associated with the transaction, on or after closing, management intends to recommend to the Plains Board that it approve a one-time special distribution currently estimated to be approximately $0.35 per unit to holders of PAA common units and PAGP Class A shares (Note: the ultimate estimated tax obligation of unitholders may alter the special distribution payment, if any). Holders of PAA common units and/or PAGP Class A shares should consult with their own tax advisors to evaluate the tax implications to them for any units or shares owned as of the closing date. Additionally, as a result of the restructuring of our Canadian crude assets, we do not anticipate that Plains will be required to pay any meaningful Canadian corporate taxes for the next several years following the closing of the transaction. Other Transaction DetailsAs of June 30, 2025, Plains will re-classify the NGL assets associated with the transaction as discontinued operations. Additional information regarding the transaction can be found in a presentation posted to the Plains Investor Relations website at Forward-Looking StatementsExcept for the historical information contained herein, the matters discussed in this release consist of forward-looking statements including, but not limited to, statements regarding the proposed transaction with Keyera and the terms, timing and anticipated operational, financial and strategic benefits thereof. There are a number of risks and uncertainties that could cause actual results or outcomes to differ materially from results or outcomes anticipated in the forward-looking statements. These risks and uncertainties include, among other things: changes in or disruptions to economic, market or business conditions; substantial declines in commodity prices or demand for crude oil and NGL; third-party constraints; legal constraints (including the impact of governmental regulations, orders or policies); fluctuations in the currency exchange rate of the Canadian dollar to the United States dollar; unforeseen delays with respect to the receipt of regulatory approvals and completion of other closing conditions; and other factors and uncertainties inherent in transactions of the type discussed herein or in our business as discussed in PAA's and PAGP's filings with the Securities and Exchange Commission. About PlainsPAA is a publicly traded master limited partnership that owns and operates midstream energy infrastructure and provides logistics services for crude oil and natural gas liquids (NGL). PAA owns an extensive network of pipeline gathering and transportation systems, in addition to terminalling, storage, processing, fractionation and other infrastructure assets serving key producing basins, transportation corridors and major market hubs and export outlets in the United States and Canada. On average, PAA handles approximately eight million barrels per day of crude oil and NGL. PAGP is a publicly traded entity that owns an indirect, non-economic controlling general partner interest in PAA and an indirect limited partner interest in PAA, one of the largest energy infrastructure and logistics companies in North America. PAA and PAGP are headquartered in Houston, Texas. More information is available at Investor Relations Contacts:Blake FernandezMichael GladsteinPlainsIR@ 809-1291Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
