The markets have been flying in recent weeks and one sector that’s surprisingly doing well is oil and gas. Shares of Inter Pipeline (TSX:IPL) are up more than 25% in just the past month.
After the company slashed its dividend, oil prices briefly going into negative territory, and the COVID-19 pandemic threatening to hurt demand for oil, it looked like an undesirable stock to hold.
However, a lot’s changed in just a few weeks as cities in North America are reopening. OPEC and its allies have also agreed to extend production cuts which will hopefully keep oil prices relatively study.
There’s definitely reason to be optimistic that things could improve in the oil and gas industry, especially if prices don’t crash and if people are out traveling and using oil.
Inter Pipeline’s no longer paying an astronomical dividend of over 8%, but investors who buy the stock today can still earn a modest 3.4% payout. And the stock also pays every month, so it can provide investors with some recurring cash flow.
Currently, Inter Pipeline’s stock is trading at around 10 times its earnings and 1.3 times book value. Those would normally be some great multiples but given the risk involved, investors need to consider whether it’s still a good buy.
I’d be hesitant to buy shares of Inter Pipeline today because the markets are a bit too bullish given that the COVID-19 pandemic is still nowhere near over.
And if there’s a surge in cases or another wave that sends cities back into lockdown, Inter Pipeline and other oil and gas stocks will suffer. And that’s why I wouldn’t consider buying the stock today as there’s still a lot of risk here.
