Inter Pipeline (TSX:IPL) remains one of the most lucrative and least-known stocks on the market. As the name suggests, Inter Pipeline has a pipeline segment, but the company offers much more, as it is better classed as an energy infrastructure company. So, what exactly makes Inter Pipeline a good investment option? There are actually five viable reasons to consider investing in the stock at the moment.
The lucrative pipeline business
The pipeline business can be a mixed blessing and curse at times. On the one hand, pipelines provide a reliable source of revenue for the company, and all of that revenue is rarely, if ever impacted by the price of the commodity traversing the network. In other words, pipelines charge by volume and are best compared to a toll-booth network on a busy highway.
In the case of Inter Pipeline, the company has a network that spans over 3,900 km. It was responsible for transporting over 1.4 million barrels per day in the most recent quarter.
The booming storage business
If the pipeline business is best viewed as the toll-road network, Inter Pipeline’s storage business would be the conveniently located rest stops. In total, Inter Pipeline has 23 storage units situated across Europe with a capacity of 37 million barrels. In the most recent quarter, the storage business generated $26.8 million funds from operations, reflecting an $8.1 million improvement over the same period last year.
The Heartland Petrochemical complex
Once completed in 2021, the rapidly emerging $1.3 billion petrochemical complex will take locally sourced, low-cost propane and turn it into polypropylene, which is a unique plastic used in a variety of manufacturing processes.
The complex is the first of its kind in Canada, and upon completion it will introduce another lucrative revenue stream into Inter Pipeline’s already diversified mix.
A great source of dividend income
Who doesn’t love a good dividend stock? Inter Pipeline currently offers an eye-catching yield that comes in at 7.84%. One of the first reactions that a yield that high may trigger is “it’s unsustainable,” and while there’s always a risk of a dividend being cut, Inter Pipeline’s handsome distribution typically comes in at a sustainable payout ratio, most recently below 80%.
The complete package
While none of the above reasons stand out on their own as compelling reasons to invest in Inter Pipeline, factoring all of the above into consideration paints a picture of a well-diversified energy infrastructure company that is not only generating a good amount of revenue but is also investing in lucrative growth strategies and providing a very lucrative dividend to investors.
In other words, that complete package makes it hard to not invest in Inter Pipeline, which, in my opinion, should be in every portfolio.
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 Demetris Afxentiou has no position in any of the stocks mentioned.