Inter Pipeline (IPL.TO)

The company has had explosive growth over the past decade, with 14% compounded cash flow growth rate over the past 3 and 5 years. However cash flow growth has recently gone negative by 3.5% and estimated earnings have been revised downward. The yield at 7.4% is high, dividend coverage is below 75%, which is his upper limit. On a three-year basis this might be a good investment, but over a shorter term, he prefers other stocks despite the high yield.

Decided last month to sell their position. One of her concerns is the cost of the new propane and polypropylene facility they are building. She estimates that they have only about 55% of capacity contracted and would have preferred 70% before they go ahead. This increases the future risk profile. The dividend is probably sustainable for now, the yield is attractive, but the future yield might have to come down.

Inter Pipe is spending $3 billion to convert natural gas to polypropylene plastics by 2022. Low Alberta natural gas prices makes this viable. Their pipeline business is take or pay and at full capacity. This will allow the company to grow and increase dividends. He thinks this is mispriced. Yield 7%. (Analysts’ price target is $30)

Now is not a good time for utilities because of rising interest rates. Iroincally, IPL has always been rich until now. Wait till utilities are back in favour before buying.

Going to build a $3 billion plastics plant in Alberta, using gas as a feedstock. The market is probably concerned that this is a step away from their low risk profile, and is going to take a while, so he is not modeling any growth for the next few years. This is a dividend play in a lot of ways, so he models the payout ratio as going from 66% to 72% to 77% over the next 3 years. He sees the balance sheet slightly deteriorating from 4.7% to 5.2%. It is trading at a reasonable valuation versus its midstream peers. Just hiked their dividend by 4%. There are better plays out there, such as Pembina (PPL-T). Dividend yield of 6.7%.

It is a good hold with a decent 6.5% dividend. They grew their facilities over the last few years and there is still a little bit of room to grow. They are not cheap on an earnings basis. You can safely hold this company and not worry about the dividend. Don’t buy for growth.

Concerns are somewhat valid. If you issue more stock you have to pay dividends on it. When there are overhangs on the stock you can have problems for quite some time. The dividend is not in question but the growth of it may be. Watch what happens as they do an issue.

Enbridge (ENB-T) or Inter Pipeline (IPL-T)? This is kind of like "which of your children do you love best?". He owns both. This one doesn't have as many near term catalysts. Has a very steady and stable base business. Also has some midstream assets, where they fractionate natural gas into natural gas liquids. That gives a bit of a cyclical thrust, because fractionation margins on natural gas have been very good.

Crude oil related, and has pulled back. This provides a nice yield. It’s not going to be as robust as it has been in prior years. Their operations are regulated and they have a steady cash flow stream. Feels the dividend is safe.

ENB-T vs. IPL-T. Oil pipelines are not going away and pipelines are safer than rail. The question is where interest rates are going because people buy them for the dividend. He believes rates are not going up very far so the yields remain quite compelling. A Pipeline should be a key part of every portfolio and ENB-T would be his preferred because it has been so beaten up and the yield is higher.

The bottom at $22 in the summer was a pretty good Buy. It has been a little bit weak lately. There is probably going to be some pretty good buying at around $24.75, so there is possibly a little more downside. Pays a nice dividend. A well-run business.

Looks better to him than it has in the past. He has always wanted to like this company because it’s a good solid pipeline, but has found it to be quite overpriced in the past. In the last 2 years it hasn’t done that well on the market, it’s still a strong company but now it looks like it's priced better. Regarding the new petrochemical business they are getting into, there are some uncertainty, but there are some companies in this sector that are actually doing quite well. He doesn’t know the details of what they are getting into but he wouldn’t despair because it’s not a bad business in general.

Enbridge (ENB-T) or Inter Pipeline (IPL-T)? He prefers Enbridge.

They are building this $3.5 billion petrochemical plant to make plastic which is really interesting. From a company perspective, thats a huge thing for them. It’s going to add some diversification. As far as the actual technicals, we saw this overall flat period followed by a little bit of a correction, and the stock is down overall so far in 2017. Energy stocks tends to perform well in February or early January. This might be a good way to sneak into the sector right now. He would like to see a little bit more strength right now. We have seen a breakout on the downtrend which is positive, but he’d be looking for more of a breakout here.

(A Top Pick Feb 3/17. Down 1%.) The whole sector is suffering from the view that somehow energy is going to disappear in the next couple of years, which he doesn't believe at all. The dividend seems to be relatively safe. Has added to his positions.