Income Investors: Should You Buy Inter Pipeline Ltd. Today for the 6% Yield?

Dividend stocks are under pressure in the wake of the Trump election win, and this is driving up the yield on some of Canada’s top income stocks.

Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) to see if it deserves to be in your portfolio today.


Inter Pipeline reported solid Q3 2016 results, despite ongoing challenges in the broader energy sector.

Funds from operations rose 3% year over year to $211 million on steady performances from all four of the company’s operating divisions.

Inter Pipeline’s natural gas liquids (NGL) processing business delivered the best gains as funds from operations increase 21.6%. Improvements in market pricing and revenue from the recent $1.35 billion acquisition of NGL assets from The Williams Companies were primarily responsible for the strong results.

The Williams deal, which included two NGL extraction plants and related infrastructure, closed in late September. Inter Pipeline purchased the assets at a significant discount to their construction cost, so the company is poised to see some strong returns on the investment once the market recovers.

Inter Pipeline’s Europe-based bulk liquids storage division also had a good quarter as utilization rates jumped to 98% compared to 95% in the same period last year. Funds from operations rose 4.1%.

The oil sands and conventional oil pipeline segments saw FFO fall by 2.6% and 1.4%, respectively, compared with Q3 2015. Lower volumes were primarily responsible for the dip.

Volume growth is expected on the oil sands lines over the long term. The conventional oil producers continue to battle with low prices.

Overall, the company had a good third quarter.


Inter Pipeline just increased its monthly payout by 3.8% to $0.135 per share. That’s good for a yield of 6.2% at the current stock price. The payout ratio was 64.8% for the quarter, so the company has ample room to increase the distribution or continue to meet the existing payment if FFO drops.

Should you buy?

Inter Pipeline’s distribution looks safe, and investors could see further increases as the new assets contribute to cash flow.

The downward trend in the stock might continue in the near term, especially if oil prices extend their recent slide. However, if you have a buy-and-hold a strategy and are looking for a reliable, above-average yield, Inter Pipeline looks attractive right now, and any additional weakness should be viewed as an opportunity to add to your position.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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