Pipelines – A new Position
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?
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!
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….
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?
Hey I’m Rob, creator of Passive Canadian Income.
In 2011 me and my wife had almost $60,000 in debt and a negative $7,000 Net Worth. Through hard work and financial education we paid all that off. Now we are focusing on increasing our Passive Income Streams to make the money work for us. Feel Free to Follow along the Journey by clicking the Social Media links below or subscribing to get notified of new posts on the sidebar.