Plains All American Pipeline (NYSE:PAA) has been investing heavily to build out new oil infrastructure in the fast-growing Permian Basin to ease the region's constraints. Those projects have helped fuel fast-paced growth in the energy company's earnings and cash flow this year, which was the case once again during the third quarter. The company's strong showing during that period enabled it to boost its full-year forecast for the third straight time. Meanwhile, continued progress on the expansion front has the oil pipeline master limited partnership on track to keep growing at a healthy pace over the next few years.

An in-depth look at Plains All American Pipeline's third-quarter results

Metric

Q3 2019

Q3 2018

Year-Over-Year Change

Adjusted EBITDA

$731 million

$636 million

14.9%

Distributable cash flow (DCF)

$469 million

$396 million

18.4%

DCF per unit

$0.64

$0.55

16.4%

Data source: Plains All American Pipeline.

Plains All American's earnings surged nearly 15% year over year and came in well above its projection that it would produce $595 million of adjusted EBITDA during the quarter. Fueling that strong showing was its transportation and supply and logistics segments:

Plains All American Pipeline's earnings by segment in the third quarter of 2019 and 2018.

Data source: Plains All American Pipeline. Chart by author.

Transportation earnings soared 19% year over year because of higher volumes on its Permian Basin systems, including the start-ups of the Sunrise II and Cactus II pipelines, the latter of which began partial service in the third quarter. Those new additions more than made up for the income it lost by selling some of its stake in the BridgeTex pipeline last year. Without that sale, earnings would have risen 27% year over year.

The company's supply and logistics segment also delivered strong growth as earnings rose 23% year over year. The driver was Plains All American's continued ability to use its midstream infrastructure network to take advantage of the difference in crude prices between the Permian Basin and the U.S. Gulf Coast.

Earnings in the facilities segment, meanwhile, remained steady as the company benefited from the predictable cash flow these assets earn via long-term, fee-based contracts with customers.

A pipeline and an oil pump at sunset.

Image source: Getty Images.

A look at what's ahead for Plains All American Pipeline

The oil pipeline MLP's continued strong showing through the third quarter led it to boost its full-year guidance once again. It now expects to produce $3.075 billion of Adjusted EBITDA this year. That's 3.4% above last quarter's forecast and implies 14.6% year over year growth. DCF, meanwhile, is on track to come in at $2.07 billion. That's a 1.7% improvement from last quarter's outlook and would be 15.8% above 2018's level. The main driver is the continued strength of supply and logistics, which is highly dependent on commodity prices.

Plains All American also put out its preliminary view of 2020. The company expects Adjusted EBITDA from its fee-based segments (i.e., transportation and facilities) to grow by about 4% next year, driven in part by the ramp-up of Cactus II. The pipeline company also noted that it anticipates an acceleration in its growth rate beginning in 2021 as its current slate of expansion projects start coming online in the second half of next year. Overall, it expects to invest $1.35 billion in both 2019 and 2020 on these projects before spending moderates in 2021. This forecast sets the company up to generate significantly more free cash flow in 2021, which it could return to investors above its 7.6%-yielding dividend.

More confirmation that it's an excellent stock for income seekers

Plains All American Pipeline continued to generate lots of cash by moving oil from production areas to market centers during the third quarter. That's giving it the money to pay its high-yielding dividend and invest in several expansion projects. Those expansions will grow its more predictable fee-based cash flow in the coming years, which will provide it with the funds to keep increasing its dividend. Add that rising income stream to its dirt cheap price, and Plains All American is an excellent income stock to consider buying these days.