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This Stock Has Hiked Its Distribution 35 Times Since 2001

They said it couldn't be done. But one of the boldest energy predictions of the past decade is about to happen.

According to the IEA, the United States is about to surpass Russia to become the world's second largest oil producer. Thanks to new techniques like horizontal drilling and hydraulic fracturing, millions of barrels of previously unrecoverable oil are now being extracted from shale fields across the country.

This has led to a quiet revolution in the American energy industry. In just two years, oil production in the United States has increased 36% to over 7.5 million barrels per day. That's the most oil America has produced in a quarter century.

And it's this massive opportunity that explains why Plains All American  (NYSE: PAA  )  could be the top dividend growth stock of the next decade. 

Who else wants a safe 4.65% yield?
For those of you unfamiliar with this company, Plains is one of the largest energy transportation firms in the country. The partnership owns 18,000 miles of pipeline — enough to cross the country more than six times — that move millions of barrels of oil and gas around the continent each day.

What makes Plains such a wonderful business is that, like a toll road or a power utility, there's little need for a competing channel once a pipeline is laid. That means Plain's has a de facto monopoly ensuring thick profit margins for decades to come. 

And about 75% of Plain's revenue is fee-based. Through this business model, the company earns a fee for every barrel of oil and gas that flows through its network. Conservative investors don't have to worry about wild commodity prices disrupting their steady distribution income. 

These two advantages allow Plains to throw off an enormous amount of cash to investors. Year-to-date Plains has distributed $855 million to unit-holders and today the partnership yields 4.65%. Meanwhile, the firm has hiked its distribution 35 times since 2001. 

It doesn't take a rocket scientist to figure out that this sort of stock should continue to reward unit-holders year after year.

But that's nothing compared to what's coming next
Across the country, massive new shale fields are being discovered. 

This summer Continental Resources (NYSE: CLR  )   predicted that the North Dakota Three Forks, located directly underneath the mammoth Bakken field, could contain upwards of 13 billion barrels of recoverable crude oil. While these estimates may be optimistic, the company's bold predictions for the Bakken have proven to be remarkably accurate in the past. 

And this boom isn't limited to North Dakota. This year Pioneer Natural Resources  (NYSE: PXD  )  discovered the Spraberry Wolfcamp in West Texas. Based on the company's initial estimates, the field could contain some 50 billion barrels of crude oil. If accurate, the Spraberry would be the second largest oil field every discovered. 

This development is so big that the IEA predicts that the United States will surpass Saudi Arabia to become the world's largest oil producer by 2016. And based on current trends, the United States could become completely energy self-sufficient by 2035. 

But to accommodate this boom the energy industry will require a massive build out of infrastructure to collect, store, and ship all of this new production. Midstream companies like Plains are poised to make a fortune. 

Plains has an incredible $800 million in secured expansion projects on the books for next year. The partnership has dozens of new ventures slated including hundreds of miles in pipeline extensions and new storage facilities.  

Keep in mind that this is already one of the country's largest midstream players endowed with a great set wide-moat assets. But continued expansion could fuel more dividend hikes in the years to come. 

Foolish bottom line
This certainly could be the top dividend growth stock of the next decade. Thanks to North America energy revolution, Plains All American should continue to reward unit-holders through backlog of expansion projects and increasing distributions. Investors should definitely add this partnership to their watchlist in the New Year.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 15, 2014, at 10:50 AM, Lippoldtskivich wrote:

    Your investment thesis makes sense to me and I'm long PAA. But, I'm starting to wonder about the pace of share dilution. It seems that the share count may be rapidly expanding, out of line with the economic development of the partnership. Is this a concern?


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