Inter Pipeline Ltd

Sound bite for Twitter and StockTwits is: Dividend Growth Pipeline. The price seems reasonable at the present time. This would not be my favourite pipeline as I would be concerned about the Liquidity Ratios and the Dividend Payout Ratios. See my spreadsheet on Inter Pipeline Ltd.

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 lots of utility stocks.

The dividends are good with low to moderate dividend growth. The current dividends are 6.49%, with 5 year median and 10 year median dividend yields at 5.07% and 6.07%. The dividend growth over the past 5 and 10 years is at 10.3% and 6.9% per year.

Dividend growth is not what it used to be. For the stocks I follow 50% have dividend growth increasing, 48% have dividend growth decreasing and 2% have flat growth. So this stock is in the 50% of stocks that have increasing dividend growth. That is because the 5 year growth is better than the 10 year growth. But this is not the whole picture. Dividend growth slowed in 2016 with an increase of 6.1% and so far in 2017 dividend growth is lower at 3.8%.

Currently this company cannot afford their dividends. The Dividend Payout Ratio for 2016 is 119% with 5 year coverage of 144%. Analysts do not see this being under 100% over the next few years either. This is cautionary note.

The debt ratios look really bad until you account for the credit facility which is not really short term and the current portion of the long term debt. The Liquidity Ratio for 2016 is 0.13. When this ratio is below 1.00, it means that current assets cannot cover the current liabilities. If you add back in credit facility loans and current portion of long term debt it is 0.79. If you then add in cash flow after dividends it becomes 1.44. The problem with low Liquidity Ratios is that companies become vulnerable in bad times. This is a second cautionary note.

A positive note is the Return on Equity. The ROE for 2016 is 14.1% with a 5 year median ROE of 13.5%. The ROE has only been below 10% once in the past 5 years and twice in the past 10 years. However, the ROE on comprehensive income is lower at 10.6% for 2016 with a 5 year median of 10.6%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 15.13, 18.72 and 22.78. The corresponding 10 year values are 13.24, 15.93 and 18.35. The corresponding historical values are 14.90, 18.16 and 20.55. The current P/E Ratio is 16.99 based on a stock price of $24.98 and 2017 EPS estimate of $1.47. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $17.12. The 10 year low, median and high median Price/Graham Price Ratios are 1.26, 1.55 and 1.82. The current P/GP Ratio is 1.46 based on a stock price of $24.98. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Book Value per Share Ratio of 2.97. The current P/B Ratio is 2.82 based on BV of $3,261M, BVPS of $8.86 and a stock price of $24.98. The current P/B Ratio is some 5% below the 10 year median. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a historical median dividend yield is 8.77%. However, the very high dividend yields this stock had are mostly when it was starting to pay dividends some 20% years ago. The 10 year median dividend yield is lower at 6.07%. The current dividend yield is 6.49% based on dividends of $1.62 and a stock price of $24.98. The current dividends are some 7% higher than the 10 year median. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Sales (or Revenue) Ratio of 4.31. The current P/S Ratio is 4.21 based on 2017 Revenue estimate of $2,184M, Revenue per Share of $5.94 and a stock price of $24.98. The current P/S Ratio is some 2% lower than the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold. Most of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 month stock price target is $30.92. This implies a total return of 30.26% with 23.78% from capital gains and 6.49% from dividends based on a current stock price of $24.98.

Ryan Goldsman on Motley Fool talks about why he thinks this company is a currently good buy. Don Majors on Sports Perspectives talks about IPL insider Cory Wade Neufeld buying shares in this company. Cole Patterson on Simply Wall Street looks to see if IPL can afford their dividends. See what analysts are saying about this company on Stock Chase. They talk about it being more tied to the oil sands than other pipelines.

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 Ltd.

The last stock I wrote about was about was Morneau Shepell Inc. (TSX-MSI, OTC-MSIXF)... learn more. The next stock I will write about will be TMX Group Ltd (TSX-X, OTC-TMXXF)... learn more on Friday, July 14, 2017 around 5 pm. Tomorrow on my other blog I will write about Dividend Achievers... learn more on Thursday, July 13, 2017 around 5 pm.

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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