Over the past 10 years Inter Pipeline Ltd (TSX:IPL) has returned an average of 6.59% per year from dividend payouts. The stock now yields roughly 6.44% with a market cap of $7.28 Billion. Should it have a place in your portfolio? I will look into that.
Here’s How I Find Good Dividend Stocks
When researching a dividend stock, I always follow these screening criteria:
- Annual yield among the top 25% of dividend payers;
- Have they missed a payment in the past 10 years, or did the company significantly cut its dividend payout?
- Dividend per share amount increased over at least 10 years
- Can they afford to pay the current rate with their earnings?
- Do I believe the company can afford to keep paying based on future earnings growth?
In the case where a company has been paying a dividend for less than 10 years I don’t consider it to be a pure dividend stock as yet. Rather, I would include the dividend as part of a wider investment thesis. Check out our latest analysis for Inter Pipeline
Does Inter Pipeline pass our checks?
Inter Pipeline has a payout ratio of 84%, meaning the dividend is sufficiently covered by earnings. Looking forward 3 years the analysts expect the dividends per share to be around $1.771 and EPS to increase to $1.44. This means shareholders should be concerned with the company’s ability to continue paying with an estimated future payout ratio of 123%.
If there’s one type of stock you want to be reliable, it’s dividend stocks. In the case of IPL they have increased their DPS from $0.84 to $1.62 in the past 11 years. During this period they have not missed a payment, as expected for a company increasing their dividend.
Therefore everything is looking good for Inter Pipeline with its attractive yield of 6.44%, which is high for a energy stock.
The Take Away
With this in mind, I definitely rank Inter Pipeline as a strong income stock, and it is worth further research for anyone who considers dividends an important part of their portfolio strategy. Although the criteria I talk about above are fairly basic, you should be looking for stocks that pass most of them and at the same time, be confident about the fundamental business.
No matter how great a company is, it is not worth an infinite price. Is Inter Pipeline overvalued or is it actually available for a good price? I recommend you check our latest FREE analysis to find out! If you are not interested in IPL anymore check out my list of “Dividend Rock Stars” to see stocks that meet all the checks above.