The Motley Fool

Yield Investors: Is Inter Pipeline Ltd. a Top Stock for 2017?

Income investors are searching for top picks to add to their portfolios for the coming year.

Let’s take a look Inter Pipeline Ltd. (TSX:IPL) to see if it should be on your radar.

Diversified assets

Inter Pipeline owns natural gas liquids (NGL) extraction assets, conventional oil pipelines, oil sands pipelines, and a European liquids storage business.

The balanced nature of the revenue stream has helped Inter Pipeline ride out the oil downturn relatively unscathed, and management is now taking advantage of the tough market conditions to invest for the future.

What’s the scoop?

Inter Pipeline recently closed its $1.35 billion acquisition of midstream NGL assets from The Williams Companies.

The two NGL extraction plants and related infrastructure were sold at a significant discount to their construction costs, so Inter Pipeline stands to generate strong returns on the investment when the market recovers.

The Williams deal comes with a planned $1.85 billion propane dehydrogenation project, which was just awarded $200 million in royalty credits from the province of Alberta. Inter Pipeline is also evaluating a potential $1.3 billion development that would convert propylene into polypropylene.

The two projects could be up and running by 2021.

Additional investments

Inter Pipeline just announced an agreement to purchase a 15% stake in the Cold Lake Pipeline system from Canadian Natural Resources Limited (CNRL) for $527.5 million in cash and shares. Once the sales closes, Inter Pipeline will have 100% control of the Cold Lake system, which moves oil sands production.

In addition, Inter Pipeline will build a new $125 million pipeline to connect to CNRL’s Kirby North facility. That project should be completed and in service in the first part of 2020.

Dividend growth

Inter Pipeline recently raised its monthly dividend to $0.135 per share, and investors should see continued increases as new assets come online and boost cash flow.

The current payout provides a yield of 5.7%.

Should you buy?

The oil sector is starting to attract money again, and that bodes well for Inter Pipeline in the coming year.

If you want a quality dividend pick with above-average yield and strong growth prospects over the medium term, this stock should be on your radar today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

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