The pullback in the stock market is giving income investors a rare opportunity to load up on great names at very attractive prices.
Here are the reasons why I think Keg Royalties Income Fund (TSX:KEG), Altagas Ltd. (TSX: ALA), and Inter Pipeline Ltd. (TSX:IPL) look like solid picks right now.
The Keg
Restaurant names are not usually at the top of an investor’s watch list, but this one deserves a closer look.
The first Keg opened its doors in 1971 and the brand has thrived ever since. A large part of the success is attributed to the company’s consistent focus on providing high-quality food in a fun atmosphere with great service.
The business reported Q3 2015 gross sales of $139 million, a 7.1% increase over Q3 2014. Royalty income rose 8.1%.
Investors receive a monthly distribution of 8.75 cents per unit that yields about 6.2%. The company raised the payout three times in 2015 and recently sent out a one-time special payout of seven cents per unit.
If you like the brand, owning part of The Keg is a great way to help pay for your favourite steak.
Inter Pipeline
Inter Pipeline transports 35% of Canadian oil sands production, owns a bulk liquids storage business, and runs a natural gas liquids extraction unit.
With WTI oil prices stuck below US$30 per barrel you might think it would be best to avoid this stock, but Inter Pipeline is doing just fine, despite the ugliness in the oil space.
The company’s oil sands clients are large operators with deep pockets and production outlooks that span decades. The current oil rout is certainly putting a squeeze on expansion plans, but output continues to roll along at a strong pace. Oil sands operators simply can’t afford to shut the facilities down, even when the oil price is at such an unfavourable level.
Inter Pipeline reported $205 million in funds from operations for Q3 2015, a 46% year-over-year increase. The company spent about $56 million on capital projects in the quarter, so free cash flow was $149 million. That was more than enough to cover the $123.5 million the company paid out in dividends during the quarter.
Inter Pipeline recently hiked the monthly dividend by more than 6% to 13 cents per share. Management must be pretty comfortable with the revenue and free cash flow outlook to make that decision in the current environment.
The payout currently provides a yield of 7.5%.
Altagas
Altagas is an energy infrastructure business with operations ranging from power plants to natural gas gathering, processing, and distribution assets. The company gets half of its earnings from U.S.-based assets.
The geographic and sector mix results in a balanced and reliable stream of cash flow that continues to grow as new strategic assets are added to the portfolio. In the Q3 2015 earnings report Altagas delivered a 28% year-over-year increase in normalized funds from operations. The growth was 19% on a per-share basis.
Altagas raised its dividend by 12% in 2015. The current monthly payout of $0.165 per share yields 6.4%.
