Recent Buy – Inter Pipeline Ltd

Inter Pipeline Ltd

A new quarter and I am already putting some of my cash to work. Whenever I make a purchase, I like to share my buys to document and illustrate how I am building my income stream over the course of months/years. My main goal is simply to keep investing at regular intervals and build my passive income over the course of time. In a sort of ways, I am building my own pension, hoping to get to a point where I can simply live off my dividends without touching my principal investment.

I added to my position in Inter Pipeline Ltd (IPL.TO) with 30 shares @ $29.08. The stock yields 5.05% adding $44.10 to my annual dividend income.

Corporate Profile

From Yahoo! Finance:

Inter Pipeline Ltd. engages in the petroleum transportation, natural gas liquids (NGL) extraction, and bulk liquid storage businesses in Western Canada, the United Kingdom, Denmark, Germany, and Ireland. The company operates through four segments: Oil Sands Transportation, Conventional Oil Pipelines, NGL Extraction, and Bulk Liquid Storage. The Oil Sands Transportation segment transports petroleum products, including bitumen blend and diluent through Cold Lake, Corridor, and Polaris pipeline systems covering approximately 3,300 kilometers of pipeline and 3.8 million barrels of storage capacity, as well as offers related blending and handling services. The Conventional Oil Pipelines segment is involved the transportation of petroleum products, and related blending and handling services. This segment transports crude oil through the Bow River, Central Alberta, and Mid-Saskatchewan pipeline systems covering approximately 3,700 kilometers of pipeline and approximately 986,000 barrels of storage capacity. The NGL Extraction segment processes pipeline natural gas to remove NGL comprising ethane, propane, butane, and pentanes-plus; and fractionates NGL to produce ethane products and propane plus. These NGL are used as energy products; and as feedstock for the petrochemical and crude oil refining industries. The Bulk Liquid Storage segment stores and handles the feedstock and the production from refining and petrochemical operations. It operates 12 deep-water terminals and approximately 650 tanks providing 19 million barrels of storage capacity. This segment also handles, stores, and blends various petroleum products, including black oils and refined products, as well as alternative fuels, such as bioethanol and biodiesel; and petrochemical and commodity chemical products, including polymer intermediates, resins, and inorganic chemicals. The company was founded in 1997 and is headquartered in Calgary, Canada.

Recent Buy Decision

  • Inter Pipeline has a reliable business model of something akin to toll roads for energy products. All the oil extracted has to be transported and stored – and the midstream companies provide an essential service in the economy.
  • The company has paid reliable dividends since founded in 1997, and switched to monthly dividends in 2004. The current yield is attractive at 5.05%.
  • Inter Pipeline has a track record of raising dividends for 6 consecutive years (in its current form as a corporation after converting from an income trust) with 1-, 3-, 5-, and 10-yr dividend growth rates at 12.1%, 10.9%, 9.3%, and 6.1%. Those dividends have grown and accelerated over the years with the last increase being 14% announced in Nov 2014.
  • The pipeline network is smaller than some of the giants in the industry, but the company is well run and has strong financials. See corporate presentation linked in ‘Further Reading’ section below.
  • While its main operations are in Canada (~91%), the company is now expanding in North-Western Europe with storage terminals (run under the name of ‘Inter Terminals’). I personally like this move for multiple reasons including:
    • Diversification of business segments – IPL’s diversification now stands at: Oil Sands transportation (59%), conventional oil pipelines (20%), NGL extraction (12%), bulk liquid storage (9%).
    • Geographical diversification – North-Western Europe is a huge energy consumer, stable political conditions and fee-based cash flow.
    • Terminals and storage is a lucrative business segment that is seeing plenty of growth potential – as we’ve seen with Kinder Morgan (KMI), which is investing a lot in terminals.
  • Most of the debt is on a fixed rate and the upcoming debt repayment schedule can be easily covered based on the company’s financials.
  • Continued decrease on commodity price exposure through the years – In other words, whether oil prices go up or down, Inter Pipeline will still keep making money at a stable (and growing) rate.

IPL-operations

Risks

  • The global oil rout has taken a toll on the energy sector. While pipeline companies havent felt the brunt as oil extraction companies have, pipelines have still come under a bit of a pressure due to the overall pressure. Energy prices are expected to stay low for the foreseeable future.
  • The recent provincials elections in Alberta brought the NDP party to power, who have indicated to raise minimum wages, income taxes and impose climate regulations, which are all negative for the industry.

Further Reading

Full Disclosure: Long IPL.TO, KMI. My full list of holdings is available here.

18 thoughts on “Recent Buy – Inter Pipeline Ltd

  1. Great purchase. First JNJ and now IPL. They should provide a nice boost to your dividend income. 🙂 I like the idea of building up our own pension plan through dividends because it gives us control over when we can spend it and what we can invest it in. The only positive affect that might happen with a higher minimum wage is higher inflation, which could potentially drive up revenue for IPL, but we’ll see.

    • Hi Liquid,
      Thanks for stopping by and the comment. Looks like I shouldve waited a bit longer for a better price, but then again, i have never been a great timer. Nevertheless, i am happy with the price I paid for the stock.

      I agree – that it could result in inflation. Thats what all the governments and central banks are trying to do. I think its a valid approach – rather than the interest rate cuts and QE programs taken by the US Fed. Raising the floor with teh minimum wage will result in wage inflation which should spread thru the rest of the economy. We’ll see how things go.

      cheers
      R2R

  2. I like the purchase R2R. Don’t worry about the timing. 10 / 20 years from now you’ll be thanking yourself. I like the Pipelines as they are definitely a toll booth for sure. More reliable and less volatile than the oil and gas companies. Wow, we’re starting to get some good deals across the board. So many companies and so little capital… 🙂 LOL. I want to load up on insurance and banks now.
    You keep it up and thank you for the post bud.

    • You are absolutely right, DH. Thats what I think everytime – in 10-20 yrs, it wont matter if I paid $28 or $29 for the stock. Financials sure are looking great…its a sea of red out there….tempted to buy more.

      Happy investing. Keep up teh great work you are doing over there
      R2R

  3. Thanks for sharing! That is definitely a nice yield you got on cost. I’m not familiar with the company, so thanks for giving a good description. I’ll be looking to add to this sector if the price keeps dropping, and if my cash on hand cooperates of course. Best of luck the rest of the month!!

    • Hi Agent,
      Its a bit of an unknown company for non-Canadians. Its available on TSX as IPL, but I think you can also get it on OTC as IPPLF. Ive been a investor for a few years years now and it has done really well for my income. The monthly dividends are as reliable as they come.

      Best wishes
      R2R

  4. Nice buy buddy. I’m not familiar with Inter Pipeline. I bought some BHP Biliton (BBL) today. For the most part we haven’t gotten down to my price targets yet :o(
    -Bryan

    • Always good to introduce companies to fellow investors, Bryan.
      BHP is looking quite attractive now. I havent really evaluated the company to know what the fair price is, but have been watching it since the low-to-mid 40s. Also, I realize that there was a spinoff, so – that makes valuation interesting as well.

      cheers
      R2R

  5. Iran talk and china economy might drive oil price going one direction to another. I’m going to load up on oil, gas, and transportation pretty soon as the prices are very inviting. Thanks for sharing!

    • Energy stocks sure are really attractive right now, and have been for a while. Good time to load if you dont have a decent sized allocation in your portfolio.

      Best wishes
      R2R

  6. R2R,
    Great buy! Toll booths are always paid, so whether oil goes up, down, or sideways, looks like this company will come out fine. That yield is quite nice as well. And as stated earlier, I wouldn’t worry about trying to get in at a good price. If the company is solid and you’re in it for the long term, as I know you are, then no problem. Keep up the good work!

    – HMB

    • Thanks HMB. Their breakdown is also interesting – most of it is cost of labor, and the rest comes from fee-based and commodity-based. I like the business model and the diversification (although small) this company provides. Its been a great performer for me…decided to add some more shares at this time.

      cheers
      R2R

  7. The company sounds a little like KMI. I may have missed it but is this company an MLP? I don’t know much about them but thanks for posting, I’ll have to do some research. That’s a hefty dividend for sure and monthly payments are just icing on the cake!

    Take care!

  8. Good luck with the new stock. I would be concerned with liquidity. If it produces a nice dividend, it may be OK to hold for a long time.

    I just stick with the tried and true these days. S&P… Boring, no research, liquid, and historically one of the best investments out there.

    • Hi NNL,
      I dont blame you for going with S&P…for most investors, it makes sense to stick to index funds.

      IPL is not a new company..its been around since 1997 and has paid dividends since. I have owned this stock for a couple of years now and have enjoyed the 5%+ yield…just decided to add more now.

      Thanks for stopping by
      R2R

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