Income Investors: Should You Buy Inter Pipeline (TSX:IPL) Stock for Your TFSA?

Inter Pipeline (TSX:IPL) offers an above-average dividend yield. Is the payout safe?


Image source: Getty Images

The search for better returns on TFSA investments often leads Canadian investors to dividend stocks.

This is particularly true right now with rates on fixed-income alternatives, such as GICs, barely paying enough to cover inflation.

The knock on stocks is that they carry risk. Changes in the market or the business can cause the share price to fall, taking a chunk out of your initial capital. Dividends, too, are not guaranteed, and when companies run into cash flow troubles, the distributions can get cut, or even eliminated.

As a result, investors have to balance their risk tolerance with the yield they wish to obtain in their portfolios.

Let’s take a look at Inter Pipeline (TSX:IPL) to see if it deserves to be on your buy list today.


IPL is a niche player in the Canadian midstream energy segment with oil sands and conventional oil pipelines as well as natural gas liquids (NGL) processing facilities. IPL also owns bulk liquids storage sites in several countries in Europe.

Growth has historically come from acquisitions and new developments.

In 2016, IPL spent $1.35 billion to acquire two NGL extraction plants from The Williams Companies. That deal was done during low point in the commodity cycle and at a large discount to the $2.5 billion cost of building the assets. Prices improved in 2018 and the assets have performed well for IPL.

In addition, IPL picked up plans for a propane dehydration facility. The company took some time to evaluate the business case and decided to move ahead.

The Heartland Petrochemical Complex, as it is known, is expected to go into operation in late 2021. The facilities will convert propane into polymer grade propylene, which is used in the process to create plastics, fibres, and chemicals.

Alberta has vast amounts of low-cost propane feedstock, so there is an opportunity for the facility to generate strong cash flow. Management expects the Heartland site to generate average annual EBITDA of $450-500 million.

The company has invested $1.9 billion in the project, according to the Q3 2019 earnings report. The 2020 capital program is budgeting an additional $935 million.


The stock came under pressure in 2019 due to concerns that IPL will have to load up the balance sheet with debt to get the Heartland Project Completed. In the event cash flow in the various businesses takes a big hit due to weakening market conditions, there could be a risk of a dividend cut.

IPL is evaluating the option of selling the European business to help fund the capital program. The timing might be right as utilization rates in the bulk liquids storage business jumped to 92% in Q3 2019 compared to 74% in the same period last year. Funds from operations more than doubled to $30.5 million.

Should you buy IPL?

The payout ratio in Q3 was 87%, so the current cash flow is adequate to cover the dividend.

In the event the bulk liquid storage business is sold, the stock price could get a nice lift, as investors would feel more comfortable with the balance sheet. Once the Heartland Complex is complete, distribution growth should resume.

In the meantime, investors can pick up a solid 7.6% yield.

The stock comes with some risk, but the dividend should be safe. If you are searching for a high-yield stock to add to your TFSA income fund, IPL deserves to be on your radar.

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

Dividend Stocks

Turn a $10,000 Investment Into $844 in Cash Every Year

The power of compound interest from regular investments in quality dividend stocks can deliver solid long-term returns and make you…

Read more »

Dividend Stocks

Grab This 10.8% Dividend Yield Before It’s Gone!

This dividend stock is down 43% in the last year, and it's about to turn around in the near future.…

Read more »

grow dividends
Dividend Stocks

2 TSX Dividend Stocks With Seriously Huge Payouts 

If you are looking for dividend payouts of up to 7-11% of the stock price, now is the time, as…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

For $1,000 in Annual Income, Buy 1,163 Shares of This TSX Stock

Fiera Capital is a popular TSX dividend stock as it currently offers a tasty yield of 13.3%. But is the…

Read more »

A plant grows from coins.
Dividend Stocks

Old Faithfuls: Canadian Stocks Whose Dividend Payments Rise Each Year

Income investors should feel safe and secure owning three dividend aristocrats, also known as the old faithful trio.

Read more »

Retirement plan
Dividend Stocks

Boost Your CPP Pension With This Simple Hack

The CPP takeout decision is never easy, although one simple hack can significantly increase the pension payment.

Read more »

value for money
Dividend Stocks

Investors, Don’t Miss Out on These Top Dividend Stocks!

The stock market turmoil has driven these two Canadian dividend stocks down lately. But they might not remain cheap for…

Read more »

analyze data
Dividend Stocks

Better Buy for Dividends: TD Stock or Enbridge Stock?

TD and Enbridge trade near their 12-month lows. Is one stock now oversold?

Read more »