Inter Pipeline Ltd. 2

On my other blog I am today writing about growing dividend income continue...

Sound bite for Twitter and StockTwits is: stock is rather expensive. The only test that shows that price might be reasonable is the 5 year dividend yield test. However, they are probably paying too much out in dividends and they are still increasing dividends when they really cannot afford to. See my spreadsheet at ipl.htm.

I do not own this stock of Inter Pipeline Ltd. (TSX-IPL, OTC-IPPLF). In 2008, a friend had asked me about this pipeline and I had no information on it, so I investigated it. It is a utility and I follow and have lots of utility stocks.

When I look at insider trading, I find no insider selling and a small amount of insider buying worth around $1.5M and 0.02% of the market cap. There is insider ownership with the CEO owning shares worth around $15.6M and an officer owning shares worth around $46.8M. The old chairman owned shares worth around $230M but the new chairman owns share worth around only $0.8M.

The insiders do not get stock options that increase outstanding shares. Rather they get Rights that are cashable. In 2014 insiders got the equivalent of 580,000 shares which lowered the book value by some $30.3M. At the end of 2014 this number of shares would have been worth $20.8M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 15.13, 17.56 and 19.92. The 10 year corresponding ratios are lower at 12.03, 14.29 and 16.76. The current P/E Ratio is 19.45 based on a stock price of $28.59 and 2015 EPS estimate of $1.47. This stock price testing suggests that the stock price is rather relatively expensive. The stock price is near the very top end of the reasonableness range.

I get a Graham Price of $16.46. The 10 year low, median and high median Price/Graham Price Ratios are 1.07, 1.25 and 1.43. The current P/GP Ratio is 1.74 based on a stock price of $28.59. This stock price testing suggests that the stock price is relatively expensive.

I get a 10 year Price/Book Value per Share Ratio of 2.23. The current P/B Ratio is 3.49 a value some 57% higher. The current P/B Ratio is based on a stock price of $28.59 and BVPS of $8.19. This stock price testing suggests that the stock price is relatively expensive.

The 5 year median dividend yield is 5.07% and the current dividend yield at 5.14% is some 1.4% higher. The current dividend yield is based on dividends of $1.47 and a stock price of $28.59. This stock price testing says that the stock price is reasonable. However, you have to wonder about this test because they are paying out more than their earnings. The Dividend Payout Ratio for EPS was 128% in 2014 and is expected to be around 100% in 2015. This would suggest that dividends are too high.

If you look at historical dividends, they are a lot higher with the historical median dividend yield at 9.02%. This is because this company used to be a Limited Partnership, but in 2013 IPL because a corporation. Dividend yield started to decrease in 2011 when other companies that were Limited Partnerships or Income Trust companies were converting to corporations.

When I look at analysts' recommendations I find Strong Buy, Buy and Hold Recommendations. The consensus recommendation is a Buy. The 12 month consensus stock price is $34.40. This implies a total return of 25.46% with 5.14% from dividends and 20.32% from capital gains.

In this update on Dakota Financial News, Samantha Reynolds talks about recent insider buying and recent analysts' comments on this stock. In this article in the Your oil and Gas News, IPL talks about completing the Polaris Pipeline expansion. Andrew Walker of the Motley Fool gives 3 reasons why you should buy this stock.

This is the second of two parts. The first part was posted on Tuesday, July 21, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

Inter Pipeline is a major petroleum transportation, natural gas liquids extraction, and bulk liquid storage business based in Calgary, Alberta, Canada. Structured as a publicly traded limited partnership, Inter Pipeline owns and operates energy infrastructure assets in western Canada, the United Kingdom, Germany and Ireland. The company is a limited partnership, not an income trust. Its web site is here Inter Pipeline.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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