Clouds of a recession are looming over everything these days. While everyone hopes that they dissipate and let the rays of economic prosperity shine through, it’s still prudent to prepare for the worst.
If you are an investor looking for a solid stock to weather the recession, the dividend king Inter Pipeline (TSX:IPL) might be your saviour.
You might ask if the recession is really coming. To that, the most honest answer would be: Hopefully not, but you never know. And that’s the truth. It’s just not possible to declare with any degree of certainty that a recession is on its way.
Even if there is a recession looming, no one can pin down an exact time. But the market experts and gurus do seem to be preparing for the eventuality, so investors like you might want to emulate their actions, just to be on the safe side.
There might be no airtight protection against recession because it hits the market in a much broader way than many seem to realize. But buying stock in a dividend aristocrat may be one of the best protections your investment portfolio can get.
History of dividends
The company started paying dividends right after its inception in 1997. With a few years of fluctuating dividend payouts, the company has increased the dividend paid to the shareholders.
Since 2003, there have been just two years where Inter Pipeline paid the same dividend consecutively; otherwise, the amount has only increased. The payouts have grown consistently since 2009.
The current dividend yield of the company is 7.71%, which is higher than the returns of giants like Suncor and Enbridge. Inter Pipeline is trading at $22.18 per share at the time of writing this, which is around 12% lower than the year’s highest, so it might be the right time to buy-in.
Foundation and prospects
Inter Pipelines deals with energy storage, processing, and transportation. With a market cap of 9.21 billion dollars and a pipeline system of 7,800 kilometers, the company is one of the leaders of the Natural Gas Liquids (NGL) business in the country.
The company also has an impressive foreign presence, with 23 petroleum and petrochemical storage facilities in Europe, the total capacity of which is around 37 million barrels.
Effective management translates to a return on equity of 17.52%, which is more than a few of the industry giants; another considerable number is the 25.7% profit margin.
This high profitability indicates that the company may fare better than the industry during harsh recessionary times.
Inter Pipeline is also working on the Heartland Petrochemical Complex, a 3.5 billion dollar project set to become the country’s first Integrated Propane Dehydrogenation & Polypropylene Complex.
The project is expected to complete in 2021 and will be a cornerstone of Inter Pipeline’s growth.
The company also rejected an unsolicited buying offer in August. The proposal was made for more than 20% of the company’s then per-share market value. This offer shows that the company’s growth prospects are strong.
Inter Pipeline is not just a recession-resistant stock. As a dividend king with monthly payouts, the company provides a consistent income stream.
This payout schedule makes it ideal for retirees and soon-to-be retirees who want to convert their financial reserves into income — much better payout than GICs for sure.
No matter where you stand as an investor, investing in a stable dividend stock like Inter Pipeline is rarely a wrong move. If you are preparing for the recession, Inter Pipeline deserves to be near the top of your list of potential investments.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.