Inter Pipeline Ltd. (TSX:IPL) Yields 7%: Should You Buy the Stock Today?

Inter Pipeline (TSX:IPL) has pulled back after the Q2 earnings report. Is this the right time to own the stock?

Dice engraved with the words buy and sell

Image source: Getty Images.

Inter Pipeline (TSX:IPL) dropped more than 4% after reporting Q2 2018 earnings.

Let’s take a look at the current situation to see if this is the right time to put IPL in your portfolio.

Operations

IPL owns natural gas liquids (NGL) procession facilities, oil sands pipelines, natural gas pipelines, and a liquids storage business in Europe.

IPL significantly increased its NGL extraction capabilities in 2016, when it purchased two facilities and related infrastructure from Williams Companies Inc. for $1.35 billion. IPL acquired the assets at a significant discount to the cost of building the facilities and the connecting 420 kilometre pipeline. The NGL Processing business posted record Q2 results, generating funds from operations of $101.3 million. Strong frac-spread pricing is driving better numbers in the operations. As market conditions improve, IPL should see solid results continue.

The Oil Sands Pipeline business had a steady Q2 with funds from operations of $150 million, effectively the same as Q2 last year. Average throughput increased by 60,200 barrels per day (bbls/d) to 1,181,300 bbls/d.

The Conventional Oil Pipeline segment saw funds from operations drop by $4.5 million to $48.2 million compared to Q2 2017. Volumes on the company’s three pipeline systems averaged 196,400 bbls/d, compared to 205,500 in the same period last year. The dip was primarily due to maintenance work at a third-party refinery.

The European Bulk Liquids Storage group had a rough quarter compared to the same period in 2017. Funds from operations came in at $17.4 million compared to $25.3 million last year. The drop is due to shifting commodity prices, which had an impact on storage demand. Utilization rates were 84% for the quarter compared to 98% last year.

Growth

IPL is making good progress on its $3.5 billion Heartland Petrochemical Complex. The facility will produce polypropylene and is scheduled for completion in 2021. Once the plant goes into service, IPL expects to see a $450-500 million boost in average annual EBITDA.

IPL also recently announced plans to spend $82 million on an expansion of the Stettler Crude Oil Terminal to support rising light oil production in the East Duvernay play. Full operations for the two storage tanks are expected in 2020, with the site providing $20 million in incremental EBITDA.

Dividends

IPL pays a monthly dividend of $0.14 per share for an annualized yield of 7%. The Q2 payout ratio was 62%, so the distribution should be safe.

Should you buy?

At the time of writing, the stock is down more than $1 per share to $24.10. The weak numbers out of Europe might be causing some concern, but the reaction appears to be overdone. Overall, the business is doing well and the growth program bodes well for cash flow improvements in the coming years.

If you have some cash on the sidelines and are looking for an income pick with some decent upside potential, I think 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

investment research
Dividend Stocks

Better RRSP Buy: BCE or Royal Bank Stock?

BCE and Royal Bank have good track records of dividend growth.

Read more »

Payday ringed on a calendar
Dividend Stocks

Want $500 in Monthly Passive Income? Buy 5,177 Shares of This TSX Stock 

Do you want to earn $500 in monthly passive income? Consider buying 5,177 shares of this stock and also get…

Read more »

Dividend Stocks

3 No-Brainer Stocks I’d Buy Right Now Without Hesitation

These three Canadian stocks are some of the best to buy now, from a reliable utility company to a high-potential…

Read more »

Pumps await a car for fueling at a gas and diesel station.
Dividend Stocks

Down by 9%: Is Alimentation Couche-Tard Stock a Buy in April?

Even though a discount alone shouldn't be the primary reason to choose a stock, it can be an important incentive…

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Dividend Stocks

Zero to Hero: Transform $20,000 Into Over $1,200 in Annual Passive Income

Savings, income from side hustles, and even tax refunds can be the seed capital to purchase dividend stocks and create…

Read more »

Family relationship with bond and care
Dividend Stocks

3 Rare Situations Where it Makes Sense to Take CPP at 60

If you get lots of dividends from stocks like Brookfield Asset Management (TSX:BAM), you may be able to get away…

Read more »

A lake in the shape of a solar, wind and energy storage system in the middle of a lush forest as a metaphor for the concept of clean and organic renewable energy.
Dividend Stocks

Forget Suncor: This Growth Stock is Poised for a Potential Bull Run

Suncor Energy (TSX:SU) stock has been on a great run, but Brookfield Renewable Corporation (TSX:BEPC) has better growth.

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

Smart TFSA Contributions: Where to Invest $7,000 Wisely

TFSA investors can play smart and get the most from their new $7,000 contribution from two high-yield dividend payers.

Read more »