I added to my position in Inter Pipeline Fund (IPL.UN) yesterday at $7.04, where is yielded 11.9%. This is close to Inter's 52 week low of $6.91, where it traded down to on October 10. Sporting a pay out ratio of around 60% of earnings, this is another company that is very economically resistant, has perhaps been unfairly sold off, and shouldn't have a problem withstanding a recession. I expect to hold Inter Pipeline through 2011 when it converts from an income trust structure into a regular dividend paying corporation.
How low can the DOW go?
4 comments:
MG,
Can you tell me why you choose this trust vs lets say Enbridge or Transcanada ?
Lyndon
If Inter Pipeline Fund can maintain its earnings rate then your add to position was an extremely good buy. The key to buying dividend stocks in this market is if companies with beaten down share prices can maintain their earnings at the time the stock was trading at its 52 week high then they are screaming buys for capital gains and you are probably looking at juicy yields like IPL.UN
Lyndon,
I do not even follow Enbridge because the long term earnings and dividend growth has not been appealing to me.
I originally bought IPL because I wanted the extra income that it offered as a trust while my wife was on maternity leave. I didn't end up requiring the income, however I will probably hold IPL for many years because I like the business and I like the company. Currently I think IPL and TRP are both fine companies but I prefer IPL at these levels due to valuation, and the fact that I already own it so I don't really need to be redundant by adding TRP.
Also, at these levels IPL is cheaper (lower price to book, lower P/E). Also I like the extra yield from a business that lends itself to steady cash flows and lower volatility.
Double, I agree with your assessment and I would add that in this market you can also buy stocks that are pricing in more severe weakness than what is likely to come along.
For the most part, I see healthy numbers in their books but some things to watch out for:
- Debt to Equity ratio is 1.77 for FY 2007
- They put on a lot of LTD in FY 2007 (went from 674.8 mil to 1878.8 mil) and they put on another 400 mil in the 1st 3 qtrs of FY 2008
- Because of how capital intensive they are, watch their accumulated depreciation creeps up on their property/plant/equipment and they start the need to replace old equipment
- Their retained earnings have flat lined around 1000 mil for the last 4 years
- I think they are still in a growth phase so putting on a lot of debt to keep the profits coming but I don't think the profit growth is sustainable from a long-term perspective (over 5 years)
Some comparative numbers from ESI in terms of debt-levels:
- Debt to Equity 0.10
- LTD is 0
- YtoY Retained Earnings starting from 2003 to 2007: 433.2, 530.2 674.2, 972.9, 1174.2 mil
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