Inter Pipeline LTD IPL:CA

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Hi, Given the drops in stock prices, there is a stock that i have been following that it’s dividend yield just hit 18%

Inter Pipeline LTD.

Its price is now at $9.50 with a dividend yield of 18%

I am a fairly new investor, and i would like your advice on this one. I am thinking that since the markets are at a lowest of all times, should this be a good time to invest? especially in such high yielding dividend returns?

Thanks,

Jason Whittemore

sales@metalpless.com

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Asked on March 12, 2020 4:41 pm
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Private answer

Hey Jason,

Obviously, it has been a chaotic market. This is especially true of any company in the oil & gas industry, pipelines included.

On a personal note, I own IPL and have for some time. I bought it because of the largest project in company history - the Heartland Petrochemical Plan which is the first of its kind in Canada. It is expected to add materially to adjusted EBITDA once fully operational in late 2021.

The current dividend yield, although attractive is not necessarily safe. It wasn't 100% save before the collapse, it is certainly less safe now. The company has about $1.3 billion left in CAPEX on Heartland. It had just enough liquidity to cover the dividend, and complete Heartland based on the liquidity available on its line of credit and yearly cash flows. It was at its max and it required perfect execution.

Unfortunately, yearly cash flows were calculated based on a much higher oil price. If some of their users go belly-up, then this will impact cash flows and something will have to give. The most logical course of action would be a cut to the dividend.

Even if everything was fine and it had enough cash flow, an 18% is simply not good business practice. Most companies can sustain this over a short period, but in a prolonged bear market it is not sustainable. Hence, a dividend cut is likely if oil prices remain depressed.

At these prices, it makes for an attractive entry point. However, if you are buying for an 18% yield, be prepared for a cut. That being said, even a 50% trim would result in a 9% yield.

We are experiencing an unprecedented time of volatility.

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Posted by Mathieu Litalien
Answered on March 12, 2020 6:22 pm