TFSA Users: Collect $3,800 Per Year With Only $50,000 in This 7.6% Dividend Stock

TFSA users should start to consider including Inter Pipeline stock in their investment portfolios. This pipeline company is about to realize massive gains from its $3.5 billion asset.

The oil space rebounded quite well in the latter part of 2019. It’s a good sign for TFSA users wishing to grow their balances in the new year. One oil and gas midstream company that could add value to your portfolio is Inter Pipeline (TSX:IPL). The time is ripe to take advantage of the high 7.6% dividend offering.

Besides the attractive yield, there’s no pressing political risk in Alberta and B.C., where Inter Pipeline operates. The major integrated plant it is building in Western Canada should also improve cash flows once the facility goes online.

Consistent performer

Inter Pipeline did not have an outstanding performance in 2019, although it was consistent with gains of 25.4% at year end. Historically, the outlook for the company depends on the spike and dip of oil prices. Lower prices result in product cuts by oil producers and therefore it brings down revenue of the pipeline operators.

Despite this characteristic, Inter Pipeline’s revenue growth since 2013 has been impressive. From $1.4 billion, it grew to $2.6 billion in 2018, or an increase of 85.7%. Because of the successful expansion of operations, cash flow per share also increased ($1.65 to $2.80) by 70.7% during the same period.

However, expect Inter Pipeline to report slightly lower top and bottom lines in 2019. Still, if you’re in the hunt for an excellent dividend play, look no further. At the current yield, seed capital of $50,000 should deliver $3,800 in annual income. Hold the stock for nine-and-a-half years, and you’ll double your money.

Waiting for a multi-billion asset to deliver

The Heartland Petrochemical Complex, an integrated plant that converts propane into high-profit-margin polypropylene plastic, should be completed by the end of 2021.

The cost of this project in Fort Saskatchewan, Alberta, to Inter Pipeline would total about $3.5 billion. But this multi-billion asset is expected to add something like $500 million to the company’s annual cash flow once it becomes operational.

At present, the oil sands operation contributes 31% to total revenue. The cost-of-service contracts are long term, which insulates the revenue stream from oil price fluctuations. The natural gas liquid segment (NGL) contributes 33%, while its conventional oil pipelines comprise 29%.

The latter segment has less protection from oil price fluctuations, because it operates on a combination of cost-of-service, fee-based, and commodity-based contracts. The bulk liquid storage business, whose locations are in terminals in the U.K., Amsterdam, Denmark, Germany, Ireland, and Sweden, delivers the remaining 7% of the total revenue.

While waiting for the crown jewel to come online, Inter Pipeline generates stable cash flow from its seven coastal bulk liquid storage and blending terminals. The company will soon be the largest independent storage operator in the U.K., as it prepares to increase its storage capacity to 37 million barrels.

Promising business outlook

Big things are in store for Inter Pipeline as well as investors. The wait is almost over for the Heartland Petro Chemical complex. It’s the most significant milestone, as nothing similar has ever been done in Western Canada. TFSA users are in a position to be more prosperous this year and perhaps in the succeeding years.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

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