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.
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.
- 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.
- Q1 2015 Quarterly Factsheet
- Corporate Presentation – Jul 2015
- 2014 Annual Report
- See my list of other recent purchases
Full Disclosure: Long IPL.TO, KMI. My full list of holdings is available here.