Retirees: Is Inter Pipeline Ltd. a Top Income Pick for Your TFSA?

Inter Pipeline Ltd. (TSX:IPL) offers a growing dividend and above-average yield.

The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadian pensioners are searching for reliable dividend stocks to add to their TFSA income portfolios.

The strategy makes sense, as any distributions paid inside the TFSA are not subject to tax. In the event you sell a stock to rebalance the portfolio, the capital gains are also tax-free.

Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) to see if it might be an interesting choice right now.

Asset growth

IPL owns natural gas liquids (NGL) extraction assets, oil sands pipelines, conventional oil pipelines, and a liquids storage business in Europe.

The company survived the oil rout in pretty good shape, and management even took advantage of the downturn to add strategic assets at attractive prices, including the $1.35 billion purchase of two NGL extraction facilities and related infrastructure from The Williams Companies.

The deal was completed at a significant discount to the cost of building the assets, so IPL could see strong returns on the investment in the coming years.

The purchase also came with plans for a new plant, and IPL recently gave the $3.5 billion Heartland Petrochemical Complex the green light. In the Q4 2017 earnings report, IPL said the project should be completed by the end of 2021.

Once the complex is in operation, IPL expects to earn $450-500 million in annual EBITDA from the development.

Record results

The existing assets are performing well and IPL just reported record results.

The oil sands pipeline business delivered full-year funds from operations of $612.4 million in 2017, up about 5% year-over-year.

NGL Processing activities continued to see a recovery from the tough environment in recent years. The division generated annual funds from operation of $279.6 million, representing a gain of 89% over the previous year. The contribution from the assets acquired in September 2016 combined with higher frac-spread pricing to deliver the strong results.

Conventional oil pipelines saw funds from operations jump 8% compared to 2016, supported by higher throughput volumes and better performance from the midstream marketing activities.

In Europe, bulk liquids storage funds from operations slipped from $120 million in 2016 to $97.6 million last year due to reduced activity and utilization levels in the second half of 2017.

Overall utilization was 96% during the year, compared to 98% in 2016.

Dividends

IPL increased its dividend in November. The current monthly payout of $0.14 per share provides and annualized yield of 7.4%. The 2017 payout ratio was 61.6%, so there is indeed room for additional increases, even if cash flow remains the same.

Should you buy?

Oil sands production continues to rise and conventional oil producers are slowly increasing their capital programs, which should bode well for throughput on IPL’s pipelines.

In addition, The Heartland complex should provide a nice cash flow boost in the coming years.

The existing dividend looks safe, and additional increases could be on the way. At this point, the stock might be a bit oversold, giving income investors a chance to pick up an attractive yield.

If you have some cash on the sidelines, it might be worthwhile to take a small position in IPL today.

Should you invest $1,000 in Canadian National Railway right now?

Before you buy stock in Canadian National Railway, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Canadian National Railway wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Dividend Stocks

chart reflected in eyeglass lenses
Dividend Stocks

TFSA $7K: Where to Invest Right Now

TFSA users can invest their $7K annual limits in two profitable large-cap dividend stocks right now.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

6% Dividend Yield? Buy This Top-Notch Dividend Stock in Bulk!

This top-notch dividend stock offers a high and sustainable yield of about 6%, enabling you to generate resilient passive income.

Read more »

data analyze research
Dividend Stocks

2 High-Dividend TSX Stocks to Buy for Increasing Payouts

For big dividends with increasing payouts, look more closely at TD and CNQ today!

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

Better Dividend Stock: TD vs. BCE

TSX dividend stocks such as TD and BCE offer shareholders a tasty dividend yield. But which blue-chip stock is a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

Magna International: Buy, Sell, or Hold in 2025?

Magna International stock: A 5.5% dividend yield and a cheap 8.1 forward P/E – Can the automotive sector stock outrun…

Read more »

Senior uses a laptop computer
Dividend Stocks

Claiming a Home Office on Your 2024 Tax Return? Read This First

You may not be able to claim the home office tax credit, but you can claim the dividend tax credit…

Read more »

rail train
Dividend Stocks

Best Stock to Buy Right Now: CN Rail vs CP Rail?

Both these railway stocks have a strong future outlook, but which offers more value, and which more growth?

Read more »

Concept of multiple streams of income
Dividend Stocks

Here’s How Many Shares of Scotiabank You Should Own to Get $500 in Monthly Dividends

Scotiabank is a good income stock and it is reasonably valued today.

Read more »