Inter Pipeline (TSX:IPL): Should You Bite on the 7.7% Dividend Yield?

Inter Pipeline Ltd. (TSX:IPL) is a passive-income stock that could make you rich.

Inter Pipeline (TSX:IPL) has arguably been the hottest TSX stock this July with shares now up around 10% over the past two weeks. While the stock has a considerable amount of momentum, shares are still down over 42% from all-time highs reached in 2014, so there’s still plenty of value be had and a massive 7.7% dividend yield to lock-in for value-conscious income investors who are afraid of missing out on a name that could be on the cusp of rebounding.

In addition to the potential for capital gains, the dividend while stretched isn’t just safe; it’s capable of growing at a low single-digit rate through the 2020s thanks in part to cash-flow-generative projects due to come online over the medium term. One of the more promising projects, the Heartland Petrochemical Complex is poised to be a major source of growth for a firm that’s been down in the ditches.

The pipeline stocks are a real test of investor patience, and although investors have been ditching them to the curb in recent years, there is an opportunity for long-term thinkers to pay a dime to get a dollar.

Inter Pipeline stock still looks severely undervalued given catalysts like Heartland, which I think are being discounted by Main Street. Factor in the possibility of surging crude volumes and I think Inter Pipeline is a safer investment than its stock chart would suggest.

The way I see it, you’re getting a fair margin of safety, a well-supported dividend that’s more likely to grow than be cut, and now more recently, a fair bit of momentum. While the stock could surrender a chunk of the gains posted this month, I’m still a fan of the risk-reward trade-off given the trajectory of long-term cash flows, and the underrated pipeline of growth projects.

Over the nearer term, tuck-in acquisitions will unlock some growth, and although the July rally could be over right here, I still think income investors who intend to hold the name for at least three years will do very well with a position at these depressed levels.

A big (and safe) dividend at a wonderful price. What’s not to love?

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

woman looks out at horizon
Dividend Stocks

Rates Aren’t Falling: Here’s What I’d Do With My TFSA

With rate cuts delayed, Manulife looks like a TFSA-friendly way to earn dividends while waiting for the cycle to turn.

Read more »

woman checks off all the boxes
Dividend Stocks

Safer Dividend Stocks to Buy With $20,000 Right Now

Are you looking for some safe investments you can hold for years ahead? These four dividend stocks give you a…

Read more »

dividend growth for passive income
Dividend Stocks

A Canadian Dividend Stock I’d Hold Through Anything

With a 5% dividend yield, defensive operations and a payout ratio of less than 70%, this Canadian stock is an…

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

2 Monthly-Income ETFs With Yields Reaching as High as 5.2%

Tired of managing individual dividend stocks? Boost your passive income with these 2 low-fee iShares ETFs delivering monthly payouts and…

Read more »

ways to boost income
Dividend Stocks

TFSA Gold: 2 Dividend Stocks to Lock In Now for Decades of Passive Income

Two steady dividend payers could help turn a TFSA contribution into long-term tax-free income.

Read more »

shopper carries paper bags with purchases
Dividend Stocks

How Much Canadians Usually Have in an RRSP by Age 45

If your RRSP at 45 seems behind, the median balances suggest you’re in crowded company, and BAM is pitched as…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

1 Cheap Canadian Dividend Stock Down 18% to Buy and Hold

This Canadian dividend stock may be down recently, but its strong fundamentals still make it attractive for long-term investors.

Read more »

shopper checks her receipt
Dividend Stocks

A Perfect May TFSA With a 7.5% Monthly Payout

Slate Grocery REIT offers a big monthly yield backed by grocery-anchored centres, which can feel defensive when consumers cut back…

Read more »