The market pullback hasn’t been kind to many investors, but this is part of the long-term cycle, and opportunities abound right now for savvy investors with a bit of extra money.
Here are the reasons why I think dividend investors with a bit of cash on the sidelines should consider Inter Pipeline Ltd. (TSX:IPL) and RioCan Real Estate Investment Trust (TSX:REI.UN).
Inter Pipeline
The oil rout has taken its toll on any name connected to the energy sector, and some of the damage look like it has been overdone. This is certainly the case with Inter Pipeline. The company is a niche player in the western Canadian oil and gas sector, but it also has a sizeable storage business located in Europe.
Inter operates about 7,000 km of pipeline assets that carry nearly 35% of Canada’s oil sands production and roughly 15% of the region’s conventional oil output. These assets are supported by long-term contracts with major players, and while the rout is causing a slowdown in project expansions, companies are still producing significant volumes of oil.
Storage is a strong part of the market right now. Inter is working on a $65 million storage expansion in Saskatchewan that will add 400,000 barrels of capacity next year. The company is also growing its storage business in Europe and is now one of the region’s largest independent tank storage operations.
Despite the difficult market conditions, Inter reported solid Q2 2015 numbers. Funds from operations hit a record $181 million, which was a 37.5% jump from the same period in 2014. Net income increased 12%.
Inter pays a monthly dividend of 12.25 cents per share. That translates into a nice 5.6% yield. With a payout ratio of 72%, the dividend looks very safe.
RioCan
RioCan operates retail properties in the U.S. and Canada. The retail REIT space is taking a hit this year as investors worry about the impact of rising interest rates and a weakening Canadian economy.
Interest rates will eventually rise, but the process is going to be a slow one with very small incremental moves. A weak economy will certainly impact spending, but RioCan’s tenants tend to be strong brands capable of riding out a slowdown. Most of these companies have long-term lease agreements and are unlikely to give up their prime space unless things really get bad. If they made it through the financial crisis, odds are they can handle a mild recession.
RioCan’s recent earnings numbers suggest things are rolling along quite well.
During Q2 2015, tenants signed for 1.1 million in retail space at an average rent increase of 9.8%, and funds from operations jumped 7% compared with the same period last year.
RioCan pays a distribution of $1.41 per share that yields 5.9%. The payout should be safe, and investors could see some nice capital appreciation once the market figures out the stock is oversold.
