This 8.5%-Yielding Dividend Stock's "Epic" Deal Will Give It Even More Fuel to Continue Growing Its Payout

Key Points

• Plains All American Pipeline is buying a 55% interest in EPIC Crude.

• The deal will enhance its oil pipeline operations and cash flow.

• The MLP has plenty of fuel to continue growing its high-yielding payout in the future.

• 10 stocks we like better than Plains All American Pipeline ›

Plains All American Pipeline (NASDAQ: PAA) has undergone a significant transformation in recent years. It has sold off non-core assets -- especially those tied to commodity price fluctuations -- to focus on strengthening its financial foundation and investing in higher-quality assets. As a result, the company has become a much more durable income investment.

The master limited partnership (MLP) is using some of its financial flexibility to buy a 55% interest in EPIC Crude Holdings. That deal will give the pipeline company more fuel to grow its 8.5%-yielding distribution.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

An epic deal to boost its oil pipeline system

Plains All American Pipeline is one of the largest oil infrastructure companies in the country. It currently transports more than 8 million barrels of oil per day across its 18,000-mile pipeline network that spans the U.S. and Canada. The company holds a premier infrastructure position in the Permian Basin, where its pipelines transport over 6 million barrels per day.

The MLP's oil infrastructure in the Permian is about to get even bigger. It has agreed to buy a 55% interest in EPIC Crude Holdings from subsidiaries of Diamondback Energy and Kinetik Holdings for $1.6 billion. A portfolio company of private equity firm Ares Management will hold the remaining 45% interest in EPIC.

EPIC Crude owns about 800 miles of long-haul pipelines, including the EPIC Pipeline. It currently has the capacity to transport more than 600,000 barrels per day from the Permian Basin and Eagle Ford production regions to the Gulf Coast market at Corpus Christi. Additionally, EPIC has over 7 million barrels of operational storage and the capacity to export more than 200,000 barrels per day. Long-term minimum volume contracts back these assets, providing EPIC with predictable cash flow.

The EPIC deal also comes with embedded growth potential. The company is exploring the potential of expanding its crude oil pipeline capacity to 900,000 barrels per day. Plains would pay an additional $193 million earn-out to Diamondback and Kinetik Holdings if this expansion project gets approved by the end of 2027. Additionally, Plains sees potential to capture further synergies in the future, which would enhance its returns and growth profile.

The incremental cash flow from this investment should enable Plains All American to return more cash to investors in the future. The company expects to close the deal early next year, which it will fund with its strong balance sheet.

The portfolio reshuffling continues

The EPIC Crude investment is the latest move Plains is making to enhance its portfolio. In June, the company agreed to sell its Canadian natural gas liquids (NGL) business to Keyera for nearly $3.8 billion. The sale will sharpen the company's focus on operating oil infrastructure assets. It will also enable Plains to produce more durable cash flows. The company expects to get about 85% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from fee-for-service agreements following the deal's closing early next year. That's up from 80% currently. The sale will also provide it with significant financial flexibility.

Plains All American Pipeline already has lots of financial flexibility. It ended the second quarter with a 3.3 times leverage ratio, which is toward the low end of its 3.25 times to 3.75 times target range. The company expects its leverage ratio to remain within that range even after closing the EPIC deal. That means it will have plenty of financial capacity to make additional bolt-on acquisitions.

The MLP has made several smaller deals already this year. The largest transaction was the $475 million acquisition of Ironwood Midstream in Q1. Plains has also increased its interest in several joint ventures and bought out the remaining interests of other partners. These accretive deals boosted the company's cash flow, helping support its decision to increase its distribution by 20% earlier this year. Plains has grown its distribution at a 21% compound annual rate since 2021. With EPIC Crude providing a further cash-flow boost next year, and the Canadian NGL sale providing additional financial flexibility, Plains should have ample fuel to continue increasing its high-yielding payout.

A high-quality, high-yielding investment option

Plains All American Pipeline has already significantly enhanced its portfolio and financial profile over the past few years. That's giving it the fuel to grow its high-yielding payout at a high rate. The EPIC deal and future ones funded with the Canadian NGL sales proceeds will give it even more fuel to continue increasing its distribution. That combination of income and growth makes Plains look like a compelling investment opportunity.

While the MLP sends its investors a Schedule K-1 federal tax form each year, which can complicate tax filing, there's an alternative option to consider. Its general partner, Plains GP Holdings, owns a 25% interest in the MLP. As a result, you get a similar income stream (8% current yield) and exposure to the company's growth potential without the possible tax issues.

Should you invest $1,000 in Plains All American Pipeline right now?

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 10 best stocks 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 $651,599!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,067,639!*

Now, it’s worth noting Stock Advisor’s total average return is 1,049% — a market-crushing outperformance compared to 185% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 25, 2025

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.