Dividend Investors: Is it Time to Buy Inter Pipeline Ltd. or TransCanada Corporation?

Inter Pipeline Ltd. (TSX:IPL) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) are bouncing back. Is one a better bet today?

| More on:

A pullback in the energy infrastructure sector is providing dividend investors with an opportunity to pick up some high-quality stocks at reasonable prices.

Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) to see if one is an interesting pick today.


IPL owns oil sands pipelines, conventional oil pipelines, natural gas liquids (NGL) extraction assets, and a liquids storage business in Europe.

The company made it through the oil rout in good shape, and management even took advantage of the downturn to add strategic assets at attractive prices. The largest deal was the $1.35 billion purchase of two NGL extraction facilities from the Williams Companies.

Those assets are performing well amid a recovery in the sector, helping drive year-over-year Q1 funds from operations (FFO) in the segment up 20%.

Across the board, Q1 funds from operations increased 3% compared to Q1 2017. The oil sands and conventional oil pipeline businesses generated similar FFO compared to last year, while the bulk liquid storage business saw FFO slip from $26.2 million to $18.7 million.

The company is moving ahead with its $3.5 billion Heartland Petrochemical Complex, which should be in operation by the end of 2021. IPL expects to see long-term average annual EBITDA of $450-500 million from the facility.

IPL raised its dividend last year, and investors should feel comfortable with the sustainability of the distribution. The payout ratio was 63%.

The stock is starting to recover after a steep pullback, but it still looks attractive. At the time of writing, investors can buy IPL for $24 per share and pick up a 7% yield.


TransCanada reported solid Q1 earnings of $734 million compared to net income of $643 million in the same period last year.

The company is working through $21 billion in near-term projects, of which $11 billion should be complete by the end of 2018. As the new assets go into service, TransCanada expects revenue and cash flow to increase enough to support annual dividend hikes of at least 8% through 2021.

Beyond that time frame, TransCanada is evaluating roughly $20 billion in additional developments, including Keystone XL, the Bruce Power life extension, and Coastal GasLink.

A go-ahead for any of these projects could result in an upward revision of the dividend-growth guidance.

TransCanada pays a quarterly dividend of $0.69 per share for a yield of 5%.

Is one more attractive?

Both stocks have solid growth portfolios and should benefit as the broader energy sector recovers.

If you have a contrarian investing style, IPL might be the way to go today. The company is smaller and carries more risk, but it likely offers better upside torque as funds flow back into the sector.

Otherwise, TransCanada is interesting today at a 5% yield, and it offers great dividend-growth prospects over the medium term.

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 stock mentioned.

More on Dividend Stocks

funds, money, nest egg
Dividend Stocks

The Best Way to Make $1 Million When a Bull Market Returns

Here are five quality TSX stocks investors can buy and hold for the long term, allowing them to increase their…

Read more »

Gold medal
Dividend Stocks

3 Undervalued Winners Just Begging to Be Invested in Today

Three undervalued stocks from three underperforming sectors are winners and screaming buys today.

Read more »

Man data analyze
Dividend Stocks

3 Top Dividend Stocks I Can’t Wait to Buy in 2023

Top Dividend Aristocrats are worth buying in almost every market, especially if you hold them long term. However, weak markets…

Read more »

financial freedom sign
Dividend Stocks

Buy 2,911 Shares in This TSX Stock for a Shot at $1 Million in 32 Years

You might not see insane growth overnight, but you won't see insane drops either from this TSX stock offering a…

Read more »

Dividend Stocks

A Dividend Heavyweight I’d Buy Over Enbridge Right Now

BCE Inc. (TSX:BCE) is a dividend heavyweight I prefer over Enbridge Inc. (TSX:ENB) due to its value and impressive income…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

2 Best Monthly Dividend Stocks for March 2023

There are plenty of monthly dividend stocks to buy right now, but prospective investors should take a closer look at…

Read more »

A bull and bear face off.
Dividend Stocks

The 3 TSX Stocks to Buy Before a Long-Term Bull Market Begins to Build

The TSX may not go bullish for a while, even when the economy recovers from a recession, but investors should…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

TFSA Investors: Make $200 in Monthly Passive Income With This 1 TSX Dividend Stock

Here’s an attractive dividend stock TFSA investors can buy now to earn $200 in monthly passive income.

Read more »