As recent as August 2019, Inter Pipeline (TSX:IPL) received a takeover bid – that it rejected – of CAD$30 per share. Who would have thought that the company would trade at only a third of that price today?
Personally, I avoided the stock for reasons that were unrelated to the headwinds that it and other energy infrastructure companies are facing today.
Specifically, I saw that Inter Pipeline had project concentration risk, as its major Heartland Petrochemical Complex project made up about 95% of its capital program at the time.
Inter Pipeline had project concentration risk, as its major Heartland Petrochemical Complex project made up about 95% of its capital program at the time.
- Brookfield Property Partners LP’s (TSX:BPY.UN)(NASDAQ:BPY) / Brookfield Property REIT’s (NASDAQ:BPR) Core Retail business is resilient, and it’s going through a phase of redevelopment to be more relevant in today’s retail environment.
- The REIT’s Core Office business is doing well.
- Realized gains reduced 2019 payout ratio from 95% to 84%.
- We’re comfortable with BPY’s token raise (+0.8%) of the Q1 2020 cash distribution, as the yield is high at 7.3%.
Financial Overview for Q4 and 2019
Funds from operations (FFO) per unit (excluding opportunistic portfolio investment gains) declined 6% for 2019 against 2018. However, BPY stock did increase its cash distribution by 4.8% year over year.
Based on FFO only, the payout ratio was 95%. Thanks to the investment gains from its opportunistic portfolio, the actual payout ratio (based on “total earnings”) is lowered to 84% for 2019. Although this is higher than the 60% range in the previous years, it’s still sustainable.
Capital Recycling Program
BPY has been consistently able to sell assets in the opportunistic portfolio or mature assets at higher than their accounting values and recycle that capital into properties with expected higher returns.
In 2019, BPY sold $3.3 billion of assets at 6% higher than their accounting values and generated net proceeds of $1.8 billion that were deployed at higher returns.
Management expects to continue this capital recycling program of stabilized or mature assets to achieve net proceeds of $1.5-$2.0 billion for redeployment.
Token Dividend Increase; Dividend Yields 7.3%
Admittedly, BPY’s 2019 payout ratio of 95%, based solely on FFO, was higher than normal. Its average payout ratio (based solely on FFO) from 2014 to 2018 was 85%.
Fortis (TSX:FTS)(NYSE:FTS) stock is as stable as stocks go. It’s perfect for conservative and risk-averse investors. Its predictable profitability has allowed it to be one of two Canadian Dividend Aristocrats with continuous dividend increases for 46 years or longer.
Fortis stock has a 10-year dividend growth rate of about 6%. The top North American utility is so confident about its growth that it already announced its intention to continue increasing its dividend at an average annual growth rate of 6% through 2024.
Its payout ratio has been at about 70%, and that’s not about to change.
Predictable Business & Profitability
Fortis has 10 utility operations diversified across Canada, the U.S., and the Caribbean. It’s a regulated utility with a focus on electricity/natural gas transmission and distribution assets and highly predictable earnings.
Thanks to management’s excellent decisions in making strategic U.S. acquisitions: Central Hudson (in 2013), UNS Energy (in 2014), and ITC Holdings (in 2016), especially when the loonie was super strong against the greenback in 2013 and 2014, Fortis has greatly diversified its operations and now earns about 65% of its earnings from the U.S.