Inter Pipeline Ltd.: A Buy for the 6.9% Dividend Yield?

Inter Pipeline Ltd. (TSX:IPL) offers a growing payout and a shot at some nice upside.

pipeline

Income investors have a variety of high-yield dividend stocks to choose from these days, and the energy infrastructure sector in particular is offering up some interesting opportunities.

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

Operations

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

The company took advantage of the downturn to add strategic assets at attractive prices, including the $1.35 billion deal to buy two NGL extractive facilities from The Williams Companies. The purchase was done at a large discount to the cost of building the sites, and IPL is already seeing the benefits amid an improvement in market prices.

Results

Inter Pipeline reported a 3% increase in Q1 funds from operations (FFO) compared to the same period last year.

Net income hit a record $143 million, supported by a 20% increase in FFO to $99 million in the NGL processing segment. Throughput volumes on the pipelines also hit a record, averaging nearly 1.5 million barrels per day.

The European business was the only weak spot in the quarter, with FFO in the bulk liquid storage segment dropping to $18.7 million from $26.2 million in the same period last year.

Growth

IPL’s $3.5 billion Heartland Petrochemical Complex is now under construction and should be completed by the end of 2021. IPL says the facility should generate long-term average annual EBITDA of $450-500 million once it goes into commercial service.

Balance sheet

IPL has a stable balance sheet. Consolidated net debt to total capitalization was 52.5% at the end of Q1, and the company finished the quarter with $1.1 billion available on its $1.5 billion revolving credit facility.

Dividends

IPL raised its monthly dividend last fall from $0.135 to $0.14 per share. That’s good for a yield of 6.9%, at the time of writing.

The Q1 payout ratio was 63%, so the distribution should be safe.

Time to buy?

IPL’s stock is down amid the broad pullback in the energy infrastructure sector. The market is concerned rising interest rates could encourage investors to dump dividend stocks in favour of fixed-income alternatives. In addition, higher rates increase debt costs and can reduce cash flow available for distributions.

These are important points to consider, but the drop in IPL’s stock price from close to $28 per share in December to the current price of $24.50 might be overdone.

If you are looking for a high-yield income play, IPL looks attractive 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 stock mentioned.

More on Dividend Stocks

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

Here’s the Average CPP Benefit at Age 70 in 2024

Canadian retirees can supplement their CPP payout by investing in blue-chip dividend stocks such as Enbridge.

Read more »

Gas pipelines
Dividend Stocks

Is Enbridge the Best Dividend Stock for You?

Enbridge now offer a dividend yield of 8%.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how a historical investment in TSX dividend stocks would have fared.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $100 Every Month

Want to earn an extra $100 per month in investment passive income? Here's how much cash you would need to…

Read more »

Canadian Dollars
Dividend Stocks

Buy 1,430 Shares of This Super Dividend Stock for $1,000/Year in Passive Income

Here's how to generate $1,000 in annual passive income with Dream Industrial REIT (TSX:DIR.UN) stock.

Read more »

A worker gives a business presentation.
Dividend Stocks

Ranking Inflation Rates in Canada: How Does Your City Stack Up?

Inflation rates stoked higher for some cities, but dropped for others. So let's look at how your city stacked up,…

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

Inflation Is Up (Again): What Investors Need to Know

Inflation ticked higher in Canada this month, but core inflation was lower. Here's how investors can take advantage during this…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Want to Make $10,000 in Passive Income This Year? Invest $103,000 in These 3 Ultra-High-Yield Dividend Stocks

Can you earn $10,000 in passive income in 2024? You can by investing $103,000 in these ultra-high-yielding stocks.

Read more »