Why Inter Pipeline (TSX:IPL) Stock Surged 3.25% Today

Inter Pipeline (TSX:IPL) stock surged 3.25% after Brookfield Infrastructure Partners upped its bid. How can you profit from this? 

| More on:

Inter Pipeline (TSX:IPL) has become an attractive acquisition target for Pembina Pipeline (TSX:PPL)(NYSE:PBA) and Brookfield Infrastructure Partners (BIP.UN)(NYSE:BIP). This renewed interest has pushed Inter Pipeline stock up 4.13% this week. But the biggest gain came today as Brookfield upped its full-cash offer to $8.58 billion from $8.48 billion. In per-share terms, it is $20 as compared to the previous offer of $19.5.

This increased interest comes as oil futures surge over the anticipation of a recovery in travel demand. Now, what does this mean to you as an investor? How can you profit from it? Let’s take one thing at a time. 

So what does the proposed acquisition mean to you? 

Brookfield has been planning a hostile takeover of Inter Pipeline for a long time. Before it made its first hostile bid in February, it acquired about 9.8% of Inter Pipeline’s shares so that it doesn’t have to disclose its purchase. The rule says that you have to disclose your holdings if you own a 10% stake. 

Then Brookfield purchased swaps to increase its stake in Inter Pipeline to around 20%, which again doesn’t need any disclosure. This misuse of financial instruments forced Alberta regulators to add a hurdle for Brookfield. Instead of 50%, Brookfield has to get investors to tender at least 55% of Inter Pipeline’s shares to complete the acquisition. But that didn’t stop Brookfield, and it increased its all-cash offer to $20. 

Amid all this, Pembina made an all-stock offer for Inter Pipeline in June. Pembina has offered IPL shareholders a 175% increase in the monthly dividend. At present, IPL and Pembina offer annual dividends per share of $0.48 and $2.52, respectively. 

Pembina plans to fund the 175% dividend growth from the acquisition synergies and accelerated growth from rising oil prices. The oil prices dipped significantly during the pandemic and have surged more than 80% since November 2020. The oil prices have surged to their 2018 high and can rise further. 

Between Pembina and Brookfield, I believe Pembina’s offer is more lucrative. Investors generally buy pipeline and infrastructure stocks for dividends and not capital appreciation. Brookfield doesn’t pay dividends and what it is offering is one-time cash.

Pembina has a rich history of paying monthly dividends since 1998 and has also been increasing dividends for the last 10 years. Rest you are a better judge of what you want, a lifetime dividend or one-time cash. 

How can you profit from growing interest in pipelines 

The  IPL, Pembina, and Brookfield trilogy has unveiled the growing interest in pipelines. It is becoming increasingly difficult to build major pipelines due to growing environmental awareness. 

Just last month, TC Energy terminated its major Keystone XL Pipeline project after U.S. President Joe Biden rejected it. This has made the existing pipelines more valuable. If you look at the long-term picture, the more valuable these pipelines become, the higher the toll rate they can charge. 

When something is limited, the game of consolidation begins as that is the only way you can expand in the same area. IPL has oil and gas pipeline infrastructure in Western Canada and liquid storage facilities in Europe, and processing plants in Alberta. 

I am not saying TC Energy will become an acquisition target, but it might acquire other companies. The result is cost synergies, bonus dividends, and capital appreciation. Think about it.

I am bullish on pipelines, and if you are too, Enbridge and TC Energy are a bargain. 

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 Puja Tayal has no position in any of the stocks mentioned.  The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS, Brookfield Infrastructure Partners, and PEMBINA PIPELINE CORPORATION.

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »