Pipelines – A new Position

Pipelines

Pipelines – A new Position

Every once in awhile we need to throw a new position in the mix, or things get boring.. =) A couple months ago, I brought up adding a new position for us. The wife quickly shot that down…. Why do we need a new one? I like our existing positions…. They are doing good for us, why change a good thing?

This month though something changed. She welcomed a new position. Maybe a festive special? I dunno what it was, but I was ready to take advantage of the situation. I have wanted to add this position to our portfolio for awhile now…..

This is a finance site…. It’s a new pipeline for our Dividend Portfolio… What were you thinking?

Oil Sands

Canada’s Oil Sands currently produce a tonne of oil. Unfortunately the oil quality is really crappy and needs to be sent long distances to refineries. Western Canada Select (wcs) oil trades at a massive discount compared to regular oil. So what are companies needing to do? Produce a lot more….. And the pipelines can’t transport it all… We need better and more efficient pipelines built.

Keystone XL, Northern Gateway, Energy East, Trans Mountain Expansion just keep getting the red tape treatment… Hey our government (taxpayers) even bought the Trans Mountain Pipeline to ensure it happens and here we are with even more red tape.. WTF!

More Refineries in Canada would be the best idea. Why ship it south of the border, pay them to refine it and then buy it back at a higher price? This whole situation is a absolute mess. I would not want to be a producer at the moment……

Maybe we should buy a more diversified pipeline company

A couple weeks ago, I posted our 5 Stocks on MY Watch list Post. I feel they all offered a good value at current prices, but could only pick one.

Inter Pipeline Ltd

Well there it is, our new position! It seems a lot of Canadian bloggers have been adding this wonderful company to their portfolio the last year. We had around $1200 to max our kids resp accounts again this year, so it was time to put the money to work. With a ex dividend date of November 21st approaching (now past), we wanted to get our first payment in December. So we added 56 shares to the account the beginning of last week.

Our previous post covered the metrics but I’ll paste them here for simplicity.

It sports a nice yield of 7.54%, that they just raised again a couple days ago by 2%. Its a monthly dividend stock and has raised its dividend for the last, well 10 years now. Their 10 year dividend growth rate is at 6.9. Not bad, but look at that original yield you get. The oil sands need more pipelines to move their product, so business should be pretty busy.

Inter pipeline currently has a p/e ratio of 14.8x at its current price of $22.62. Its 5 year average yield is 4.26% so its current yield is insane! But is that payout ratio sustainable? I calculate a current payout ratio of 111%(dividends/eps) It seems high but after reporting their last quarter earnings beat, seems to be turning around. If we use funds from operations (ffo) though their payout ratio is 54.5%. Really good!

Ipl is currently 18.98% off its 52 week high and 8.5% above its 52 week low.

Analysts at Yahoo Finance Currently give Ipl a buy rating with a target price of $28.14. Representing a potential gain of 24.4%

Ipl currently is trading under 22 bucks, so those numbers are even better!




About Ipl

Inter Pipeline Ltd. is a petroleum transportation, storage and natural gas liquids processing business. The Company’s segments include oil sands transportation business, conventional oil pipelines business, natural gas liquids (NGL) processing business and bulk liquid storage business. The Company geographical segments include Canada and Europe. The oil sands transportation business consists of the Cold Lake, Corridor and Polaris pipeline systems that transport petroleum products and provide related blending and handling services in Alberta. The conventional oil pipelines business involves the transportation, storage and processing of hydrocarbons, as well as midstream marketing blending and handling services. The NGL processing business consists of processing natural gas to extract NGLs and the processing of oil sands upgrader off gas to extract an NGL and olefin mix. The bulk liquid storage business involves the storage and handling of bulk liquid products. (source – RBC)

Inter Pipeline is currently building a 3.1 billion dollar polypropylene complex called the Heartland Complex . Go Big or Go Home. It can be risky based on the size of the project compared to the size of IPL.

I’m a huge fan of keeping products/ jobs here in Canada versus sending the raw material to the states and then buying the material goods back though….

Conclusion

I feel Inter Pipeline is a great stock to own, for many reasons.. The Heartland project represents a huge amount of growth for the company and that monthly dividend is massive. High dividend yield’s like this can scare people off, but I think the dividend is sustainable and the recent dividend increase proves management thinks so too. This new purchase adds $95.76 in forward dividend income.

Next year when we can add more money to the kids resp. I will top this up to a full position and enable drips to work their wonder.

What are your thoughts? Does the high yield scare you or entice you? Heartland ya or nah?

Cheers!

13 Responses

  1. David says:

    Nice! I had an order placed towards my son’s RESP at $21 for 50 shares which covers the remainder of cash perfectly on his account. That order has been sitting there since the beginning of the month when I first noticed that last drop. It hasn’t reached 21 again but it might being the direction it’s currently heading at the moment. I don’t want to add any more funds yet until the New Year due to the gov’t grant.

    • Rob says:

      hey David

      Nice man. Yeah your right it does seem to be sitting sideways or slowly moving down.

      That would be welcomed by me since i would like to basically double this buy to get that drip!

      Got to love that grant $

      cheers man

  2. PCI –

    Congrats on making a movie and glad they have a track record for growth with free cash flow to spare. Enjoy them divvies!

    -Lanny

    • Rob says:

      hey Lanny

      No movie yet, but im guessing you meant a move.
      Thanks, got to be happy buying a great stock and raising the dividend bar.
      cheers mate!

  3. Hi Rob, it is very nice yield. Looking at their three months ended September 30 report it is not clear to me how payout ratio is 54.5%? Net income per share is 0.44 and dividend is 0.42, it is not 54.5% they mentioned in the report. These days oil related assets scare me a bit. Thank you for sharing.

    • Rob says:

      hey income.

      Yeah that was something that threw me off as well, but if you look at their funds from operations its under 60%. While its a little high, its maintainable and even going up. Hopefully the next report brings these numbers down.

      Oil does seem to be down and out this year, all the pipes have gotten beaten down. But they arent building anymore of them, well rarely. Thats good news for existing pipes.

      Cheers

  4. May says:

    My IPL is almost 10% underwater now. Maybe considering to add some position and average down? I am a little bit worried about its high debt with interest rate rising.

    Meanwhile, added 400 shares of BPY.UN at @23.12 to average down the cost. My existing BPY.UN shares are in deep water.

    • Rob says:

      wow nice purchase!

      I keep debating starting a position in Bpy. they have came down quite a bit. If i do go with a reit artis looks really good though after that dividend cut. Really low payout ratio now and that price is 2/3rds of what it was. still a 5.6% yield.

      Sucks about ipl but im underwater now too. I want to add more so its not all that bad atm.

      Debts always a concern but i dont think that interest rate is going to go up fast. (if at all this dec)

      cheers May!

      • May says:

        One reason I bought BPY.UN is its dividend is in USD. Want to build a US dividend income stream from Canadian dividend stocks.

        • Rob says:

          hmmm interesting… in a rrsp?

          Is this just to take advantage of the usd price compared to cdn dollar or you buying us stocks with the money?

          • May says:

            In a non-registered account. I am buying using cdn dollars then journal over to usd account so that I can get dividend in usd.

  5. Certainly a nice buy, Rob. Eventually it will be a new position for me too. I like the fact that they are building Heartland complex to make high quality plastic. Plastic products are here to stay long term. So it’s a good move by them to diversify their business.
    German Korb recently posted…Portfolio Value Update – November 2018My Profile

    • Rob says:

      hey German

      thanks! Yeah seems like a good move.

      Plastic will be around for awhile but i do hope with weed legalized we start using hemp alternatives. It would be alot better for the environment.

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