2 Stocks Yielding 8-10% for Your Income Portfolio Today

Inter Pipeline Ltd (TSX:IPL) and another high-yield energy play are attracting interest from income investors. Is one a better buy right now?

| More on:
Increasing yield

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Retirees and other income investors are constantly searching for dividend stocks that pay reliable distributions that offer above-average yield.

Buying stocks with yields above 7% can come with risks, as the depressed share price often indicates the market is anticipating a distribution cut at some point. However, there are situations where a stock might be out of favour due to a general dislike for the sector, despite the company’s relatively strong underlying business and ability to maintain the payout.

Let’s take a look at Inter Pipeline (TSX:IPL) and Vermilion Energy (TSX:VET)(NYSE:VET) to see if one deserves to be on your buy list right now.

IPL

IPL is a niche player in the Canadian midstream market with oil sands and conventional oil pipelines as well as natural gas extraction facilities. The company also owns a growing liquids storage businesses in Europe.

Management does a good job of identifying strategic acquisitions when the market is weak, as we saw when IPL purchased two NGL sites and related infrastructure for $1.35 billion in 2016. IPL bought the assets at a significant discount to their construction cost and reaped the benefits last year when market conditions improved.

The purchase also came with plans for a polypropylene plant. IPL decided to give the $3.5 billion project the green light and expects the Heartland Petrochemical Complex to be in service by the end of 2021. This should add average annual EBITDA of at least $450 million.

IPL has increased the dividend for 10 straight years. The Q1 2019 payout ratio was 82%, so there is ample cash flow to cover the dividend. At the current stock price investors can pick up an 8.4% yield.

Vermilion Energy

Vermilion raised its monthly dividend to $0.23 last year and currently provides an annualized yield of close to 10%. The company is an interesting beast in the Canadian energy sector with oil and gas production assets located in Canada, the United States, France, Germany, Ireland, the Netherlands, and offshore Australia.

The international operations can sell production at higher global Brent oil and natural gas prices. The payout ratio exceeded 100% in Q1 2019, so investors will have to keep an eye on the cash flow situation going forward.

However, in the Q1 earnings report, the company said its capital program and dividend should be fully funded through operational cash flow this year with an anticipated full-year 2019 payout ratio of about 90%. The Q2 report should provide better guidance on the 2019 situation.

The stock has strong upside potential on an improvement in energy prices. Vermilion trades at $27.50 per share today compared to $78 when oil was at its peak five years ago.

Is one a better bet?

IPL and Vermilion should be able to sustain their distributions in the near term. That said, I would probably make IPL the first choice today. It is less reliant on commodity prices, and the dividend is more likely to survive in the event we see another extended dip in oil prices.

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

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

Parents: Here’s Every Credit and Benefit You Can Claim From the CRA

Parents have it hard already, so make sure the CRA is doing everything for you by dishing out payments you're…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for Life

These dividend-paying stocks have solid earnings base to support their payouts for decades.

Read more »

A golden egg in a nest
Dividend Stocks

Create a Million-Dollar TFSA With Just $1,000

If you have a TFSA, you can easily make a million-dollar portfolio by investing on a consistent basis in this…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

3 Canadian Stocks With Over 6% of Dividend Yield

Boost your passive income with three safe dividend stocks.

Read more »

TFSA and coins
Dividend Stocks

TFSA Pension: 2 TSX Dividend Stocks to Buy Now and Hold for Decades

These top TSX stocks pay great dividends and look cheap to buy right now for a TFSA retirement fund.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Dividend Income: 2 TSX Stocks to Buy on the Pullback

These TSX stocks look oversold and pay attractive dividends that continue to grow.

Read more »

oil tank at night
Dividend Stocks

1 Top TSX Energy Stocks for Summer 2022

TSX energy stocks have tanked recently, but they could enjoy a nice summer rally. Here's one top stock I'm eyeing…

Read more »

TIMER SAYING TIME FOR ACTION
Dividend Stocks

Market Correction: 2 Cheap TSX Dividend Stocks to Buy Now for a Self-Directed RRSP

These top TSX dividend stocks look cheap right now for a self-directed RRSP focused on total returns.

Read more »