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. They used to be a Limited Partnership and they changed to a corporation in 2013.
When I was updating my spreadsheet, I noticed that dividend increases have really slowed down recently. Annual increases are since 2015 to 2019 are 13.22%, 5.92%, 3.83%, 3.54%, 1.63%. The last increase was this year and it was for 1.8%. Increases occur for the last dividend payment of the year. This generally shows how management views the future. This could also have occurred for this stock because of very high Dividend Payout Ratios.
The dividend yields have mostly been in the good range (5% and above). It had high dividend yields as a Limited Partnership stock. Dividend yields are now lower, but still in a high range. The current dividend yield is 7.68%. The 5, 10 and historical yields are 6.24%, 7.27% and 8.63%.
Dividends have gone up and down and remained flat at different times in the past. The average growth has been low (under 8%) as you can see from the chart below. The recent dividends increases have increasingly become lower and the last increase was for just 1.8% in 2019.
The Dividend Payout Ratios are much too high. They have a problem with the DPR in connection with EPS. The DPR for EPS for 2018 was 110% with 5 year coverage at 117%. It has seldom been below 100% and analysts do not see that happening in the near future. The DPR for CFPS is also too high as it should be at 40% or less. The DPR for CFPS for 2018 was 62% with 5 year coverage at 66%. Lots of companies that used to be Limited Partnerships or Income Trusts are having a hard time getting the DPR to the levels it should be.
Debt Ratios are acceptable, but the Liquidity Ratio is a vulnerability. The Long Term Debt/Market Cap Ratio is 0.56. The Liquidity Ratio is 0.18. In order to get it above 1.00, we need to add in cash flow after dividends and add back in current debt due and we get a low but acceptable ratio of 1.33. The Debt Ratio is fine at 1.53 with 5 year median of 1.53 also. The Leverage and Debt/Equity Ratios are 2.89 and 1.89 respectively with 5 year median at 3.20 and 2.20.
The Total Return per year is shown below for years of 5 to 21 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 15.85, 18.72 and 22.78. The corresponding 10 year ratios are 14.90, 17.86 and 20.50. The corresponding historical ratios are 14.90, 18.16 and 20.50. The current P/E Ratio is 17.41 based a stock price of $22.28 and 2019 EPS estimate of $1.28. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $16.67. The 10 year low, median, and high median Price/Graham Price Ratios are 1.31, 1.55 and 1.82. The current P/GP Ratio is 1.34 based on a stock price of $22.28. 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 2.98. The current P/B Ratio is 2.31 based on Book Value of $3,941M, Book Value per Share of $9.65 and a stock price of $22.28. The current ratio is 23% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 8.63%. The current dividend yield is 7.68% based on dividends of $1.71 and a stock price of $22.28. The current yield is 11% below the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 4.59. The current P/S Ratio is 3.65 based on 2019 Revenue estimate of $2,495M, Revenue per Share of $6.11 and a stock price of $22.28. The current ratio is 21% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is probably cheap to reasonable. You can ignore the only test that shows the stock above the median because it is a dividend yield test and this stock used to be a Limited Partnership which would have higher yields than a corporation. The good tests of P/S Ratio and P/B Ratio show it as relatively cheap and the rests as relatively reasonable and below the median.
Is it a good company at a reasonable price? It is probably a safe utility stock, but I would worry about the Liquidity Ratio which would be a vulnerability in a bear market. There is almost no total return for shareholders over the past 5 years. Five years ago, the P/E Ratio was negative because of an earnings loss but the stock price is relatively high. The trailing P/E was 22.66. There is capital gain over the past 10 years, but 10 years ago the P/E was really low at just 6.29. The 10 year capital gains at 10.62% per year.
When I look at analysts’ recommendations, I find Strong Buy (4), Buy (3), Hold (8) and Underperform (1). The consensus would be a Buy. The 12 month stock price consensus is $24.44. This implies a total return of 17.37% with 9.69% from capital gains and 7.68% from dividends.
See what analysts are saying at Stock Chase. Generally, it is thought of a safe stock. Joey Frenette on Motley Fool says this is his top pick for July. A writer on Simply Wall street via Yahoo Finance talks about share price being down over past 5 years.. David Burrows discusses this stock on BNN Bloomberg. Deborah Jaremko on JWN Energy talks about the company’s new pipeline.
Inter Pipeline operates crude oil pipelines, natural gas liquids extraction, and bulk liquid storage businesses in Canada and Europe. The company's oil sands pipelines cover 3,300 kilometers of pipeline and hold the capacity for 4.6 million barrels a day of delivery volumes. Conventional crude pipelines, NGL infrastructure, and 31 mmbbl of liquid storage in Europe round out the company's operations. 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 Wednesday, July 17, 2019 around 5 pm. Tomorrow on my other blog I will write about Fortis by Gordon Pape.... learn more on Tuesday, July 16, 2019 around 5 pm.
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