As the 2014-15 energy rout ravaged the sector, a major casualty were previously generous energy dividends. Many oil producers formerly paid yields of 3%... 5%... or even higher.
Just about every energy dividend was slashed, with many being eliminated completely.
One energy sector emerged from the crisis relatively unscathed – the pipelines.
Inter Pipeline Ltd. (TSX:IPL) doesn’t really get the attention its larger rivals garner, despite having many advantages over them. To begin with, it has some 90% of its assets inside of Alberta. It’s a far friendlier jurisdiction for the energy sector than most other Canadian provinces.
Most these Alberta-based assets consist of three pipelines which transport bitumen from the oil sands to refineries close to Edmonton. Those pipelines have capacity of approximately 4.6 million barrels of oil per day.
The current volume is a little over two million barrels per day. As new projects begin in the oil sands, Inter Pipeline is well positioned to profit.
The company is also picking up cheap assets while the sector is depressed. It spent $1.35 billion on natural gas liquids assets from Williams Canada. These assets originally cost Williams some $2.5 billion.
Inter Pipeline has been a dividend growth machine over the last decade. Despite only raising the dividend by a penny per share between 2007 and 2009, it has still averaged growth of nearly 7% in its payout in the last decade. Over the last five years, dividend growth has been 9% annually.
With a payout ratio of approximately 60% of funds from operations, investors can count on Inter’s 5.7% yield.
