Pipeline companies offer investors an indirect way to play
crude oil while receiving sizable income distributions.
Yet, there is a hitch. About two of every three stocks in the
Oil & Gas-Transportation Pipeline industry group are thinly
Among the stocks trading at least 400,000 shares daily,Plains
All American Pipeline (
) has the highest Composite Rating with a 94.
The Composite Rating combines all five IBD ratings into a
Plains is a master limited partnership engaged in the
transportation, storage, terminaling and marketing of crude oil
and refined products, as well as similar functions with natural
From an income investor's perspective, Plains is a gem. On
Oct. 4, the company announced it would increase its quarterly
payout from 53.25 cents a share to 54.25 cents, payable Nov. 14
to shareholders of record Nov. 2.
This marked the 13th quarter in a row that the company
increased the payout and the 32nd increase in the past 34
The annualized yield is 4.7%.
Earnings increased 46% on a 10% revenue gain in the second
quarter. Q3 results will be reported Nov. 5 after the close. The
Street expects EPS to fall 22% on a year-ago basis on a 4%
Part of the reason for the weak Q3 estimates is because of a
tough comparison. Revenue jumped 38% in Q3 2011 and EPS leapt
103%, thanks largely to pipeline expansions and acquisitions.
The company invested $1.9 billion of capital for pipeline
expansions and acquisitions in 2011 and is expected to invest
$2.8 billion in 2012 and beyond.
Oil drilling and production can affect demand for pipeline
companies' services. At the earnings call in August, CEO Greg
Armstrong said, "Market conditions may not be as favorable during
the second half of 2012 as they were in the first half." He
added, though, that the long-term outlook looks good for drilling
activity and production.
One risk is regulation, which doesn't always follow political
labels. The last major expansion of pipeline regulation was
signed by President Bush in 2006.