Inter Pipeline (TSX:IPL) is rapidly approaching an important turning point, and, understandably, investors are a little nervous.
The company is in the middle of one of its most ambitious growth projects ever, spending $3.5 billion on the Heartland Petrochemical Complex. When completed, the plant will be able to process 525 kilotonnes of polypropylene each year, creating plastic resins for industries like consumer products, automobile parts, medical equipment, and currency. Heartland is projected to add between $450 and $500 million in annual EBITDA to Inter Pipeline’s bottom line.
Inter Pipeline’s other assets — which include oil sands pipelines, conventional oil pipelines, natural gas processing plants, and bulk storage facilities — are all performing well. It has emphasized assets that move away from exposure to the commodity price, which has helped cash flow steadily increase over the last five years. Funds from operations grew by 12% per year from 2013 to 2018 before taking a bit of a step back in 2019.
Although some investors are rightfully a little worried, because the payout ratio has crept up to the 80% range, that still leaves us with plenty of wiggle room for the company to be able to afford its 7.8% monthly dividend.
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