Canadian investors are searching for ways to boost their retirement savings, and with interest rates at such low levels, GICs no longer make the grade.
As a result, many people are turning to dividend stocks to boost growth in their RRSP accounts.
The strategy can produce impressive results, especially when the dividends are reinvested in new shares. In fact, buying additional stock with the distributions sets off a powerful compounding process that can turn modest initial investments into substantial savings over time.
Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) to see why it might be attractive today.
Diverse assets
IPL owns natural gas liquids (NGL) extraction assets, conventional oil pipelines, oil sands pipelines, and a liquids storage business based in Europe.
The broad-based revenue stream has helped the company ride out the downturn, and management has taken advantage of weakness in the energy sector to position the company for future growth.
For example, IPL bought two NGL extraction facilities and related infrastructure last year from the Williams Companies. The $1.35 billion price tag was a substantial discount to the cost of building the assets, so IPL stands to see a nice return on the investment as the market recovers.
In addition to the existing assets, the deal came with plans for a $1.8 billion propane dehydrogenation plant, and IPL is considering adding a $1.3 billion polypropylene operation to the site.
Assuming all goes as planned, the project could be completed and in service by the middle of 2021.
IPL also spent $527.5 million for the remaining 15% interest in the Cold Lake pipeline it didn’t already own.
Distribution growth
IPL has a solid track record of dividend growth, and that trend should continue as the new assets begin to generate additional cash flow.
The current monthly payout of $0.135 per share already provides a yield of 5.8%, so investors are looking at some solid returns, even if the stock price doesn’t rise.
Should you buy?
Investors often skip IPL in favour of its larger pipeline peers, but the company probably deserves more respect.
The dividend should be safe, and any improvement in the broader energy sector could provide a nice lift to the share price.
If you have a buy-and-hold strategy and like to take advantage of the powers of dividend reinvestment inside your RRSP, IPL might be worthy of a small position in the portfolio today.
