File photo of a gas pipeline.
The source: Peter Brieger, chief executive officer and founder of GlobeInvest Capital Management Inc. in Toronto.
The idea: Buy units of Inter Pipeline Fund .
GlobeInvest has owned units of Inter Pipeline for some time, a limited partnership it still likes because of its stable distribution. At the current price, Inter Pipeline's 90-cent distribution yields 7.4 per cent.
"It's a world-class energy infrastructure company," Mr. Brieger said in an interview.
Inter Pipeline does four things: It transports 36 per cent of all Canadian oil sands production through its oil sands transportation division; it transports 15 per cent of all Western Canadian conventional crude oil through its pipelines; it processes 40 per cent of the natural gas exported from Alberta through its natural gas liquids-extraction business; and it's the second-largest independent bulk liquid natural gas storage operator in Britain.
Oil sands account for 20 per cent of EBITDA (earnings before interest, taxes, depreciation and amortization); conventional pipeline operations 26 per cent; bulk LNG storage 11 per cent; and natural gas extraction 43 per cent.
"The key reasons we like it is it has top-rate management," Mr. Brieger says.
Inter Pipeline has stable cash flow, its customers are big names, and between 80 and 90 per cent of its business is cost of service (it can pass through its costs to customers) or fixed price, so there's little or no risk of big fluctuations in cash flow because of changes in the price of natural gas, he adds.
"For clients looking for income, we're comfortable with this company looking out three to five years."
Best of all, the company's business lines have plenty of room to grow, especially oil sands transportation.
The payoff: The potential for capital gains is a modest 2 per cent to 5 per cent a year, Mr. Brieger figures. Add the relatively high yield, though, and GlobeInvest is looking for long-term total returns of 9.5 per cent to 12 per cent over three to five years.
The big risk: There are two. One is stock market valuation, about which he says "who knows?" The other is if interest rates shoot up, the unit price would suffer. "But it wouldn't hurt the payout."
Why Listen to Peter Brieger? Mr. Brieger has been in the investment business for more than 45 years as a research analyst, market strategist, and portfolio manager. He regularly appears as a guest on Business News Network (BNN).