PAA's 7.5% Yield Looks Cheap-Permian Volume Growth Makes the Case Stronger

Plains' latest quarter looks better on yield and earnings than the "mixed" label suggests

Calling Plains' latest quarter "mixed" misses the bigger picture. The partnership delivered something investors do not often get at the same time: a yield above 7.5% and adjusted earnings that improved from a year earlier. Plains posted second-quarter adjusted earnings of 41 cents per unit, above the 40-cent consensus and up 13.9% from the year-ago quarter. At the same time, it is paying $1.67 per unit annualized, for a yield of about 7.5%. When earnings and the payout are both moving higher, that matters more than a cautious label.

The operating case is centered on throughput

The bull case is straightforward: Permian throughput is rising, and that supports cash generation. Reuters reported quarterly crude oil pipeline volumes rose nearly 16%, with Permian pipelines growing 20% to average 6.3 million barrels per day. Management also reaffirmed its Permian production outlook and kept intact their full-year adjusted EBITDA guidance range at that time. The key point is not perfection. It is that the system is handling more oil.

Bears are not imagining things. Plains is still an publicly-traded master limited partnership, so investors still have to live with the usual K-1 complexity. There is also a balance-sheet reset under way: management has been targeting a move back toward a 3.25x–3.75x target range after the planned Canadian NGL business divestiture. That makes the story less clean, but it does not erase the operating trend.

Permian volumes are feeding through to crude EBITDA

The reason this matters is simple: markets can forgive an awkward structure faster than they forgive a business with no growth. Plains now has fresh evidence from the system itself. In the first quarter, it delivered first-quarter Adjusted EBITDA of $730 million. In the second quarter, Crude Oil adjusted EBITDA increased 19% year over year to $690 million, a gain management tied in part to higher pipeline volumes. That is the mechanism investors should focus on.

Why throughput matters more than the narrative

Reuters also reported quarterly crude oil pipeline volumes rose nearly 16%, while Permian pipelines grew 20% to average 6.3 million barrels per day. For a midstream operator, that kind of throughput growth matters because the assets are already in place. Once the pipelines are built, additional barrels can translate into more margin rather than much more capital spending.

That pass-through shows up in the segment results. Crude Oil adjusted EBITDA rose 19% year over year to $690 million. That does not prove the distribution is underpriced on its own, but it does show the operating engine is working. If throughput remains firm, cash generation can keep improving even without a major move in oil prices.

Why the market may be slow to reprice the stock

Some of the delay is structural. Investors still associate MLPs with tax friction, and Plains' leverage still gives the market a reason to wait. In NGL, weaker NGL volumes and frac spreads weighed on results. But that is different from saying the core crude system is weakening.

That distinction matters because of the Canadian NGL divestiture. Management expects leverage to move back toward the 3.25x–3.75x target range after the transaction closes, which could remove one reason for investors to stay cautious.

Leverage and structure still explain the discount

The discount is understandable, which is why it can persist. Plains is a publicly-traded master limited partnership that reported a year-end 2025 pro forma leverage ratio was 3.9x, followed by a first-quarter 2026 pro forma leverage ratio of 4.1x. That helps explain why the market is treating the $1.67 per unit annualized payout with caution.

What would support a rerating

The case gets stronger if Plains can show that higher volumes are continuing to flow into cash generation while leverage moves back toward the target range. That combination would make the payout look less like a balance-sheet story and more like a yield that is not fully backed by operating momentum.

What would weaken the case

This is not a blind yield play. The thesis weakens if volume growth slows, if crude EBITDA stops expanding, or if leverage stays elevated well beyond management's current de-leveraging timeline.