Energy producers face an ever-growing demand for their products but often have a tough time getting them to market.

The rail accident in 2013 that killed 47 people in Lac Megantic, Quebec, highlights the risk of transporting flammable oil cargoes by rail. Energy companies often experience long delays for regulatory approval to build major pipelines, including the much-maligned Keystone XL.

The 3.5 million barrels of oil that Canadian companies produce daily have to find their way to market somehow, and Inter Pipeline Ltd. (TSX: IPL, OTC: IPPLF) seems better than most at maneuvering through the regulatory and environmental minefield consistently and profitably.

Infrastructure on a Small Scale

One of the smaller energy players, Inter Pipeline operates 7,100 kilometers of pipelines in Western Canada, can extract and process 200,000 barrels of natural gas liquids, and owns northern European bulk liquid storage with a capacity of 27 million barrels.

This infrastructure enables Inter Pipeline to transport around 35% of Canadian oil sand volumes, 15% of Western Canadian conventional oil production, and process 40% of the natural gas Alberta exports.

Inter Pipeline recently announced excellent results for the first quarter. Reuters consensus estimates call for profits per share to increase 34% in 2015 and 5% in 2016 as new projects are commissioned. The dividend also should grow 22% between 2014 and 2016 as the heavy capital expenditures of the past few years abate, freeing up more cash for distribution.

Much of the company’s profit comes from cost-of-service or fee-based contracts. They generally aren’t subject to commodity price swings and provide a stable, low-risk income stream.

Inter Pipeline draws most of its profits from the oil sands transport pipelines of Cold Lake, Corridor and Polaris; the Bow River conventional pipeline; and the natural gas liquids extraction facilities of Cochran and Empress.

Rollouts to Improve Capacity

Inter Pipeline has built an enviable track record of profitable growth. Over the past 10 years, the EBITDA profit of the business grew from less than $200 million to more than $700 million, or almost 30% per year. The bulk of the growth came from the fast-growing Alberta oil sands production, where the company expanded its transport facilities considerably.

After investing $3 billion in infrastructure, Inter Pipeline is in the process of expanding its service, including a nearly threefold increase in pipeline capacity for the Cold Lake and Polaris systems, when the project is completed. This expansion is partly backed by a 20-year cost-of-service agreement with Cenovus and ConocoPhillips. A major portion of the project was placed in service in January 2015, with the remaining components to be delivered this year and next.

The company also regularly snaps up assets, with the $131 million of bulk liquid storage facilities in Sweden the most recent example. This acquisition will increase its European bulk liquids storage capacity by 40%, adding around 2% to full-year profits.

The company maintains a sound balance sheet with the debt-to-capital ratio currently at a manageable 61%. Cash flow remains strong, at 37% of revenue. Free cash flow (operating cash flow minus capital expenditures) was negative in 2013 and 2014, mainly because of the heavy expenses associated with expanding the company’s pipelines. This is expected to reverse as the projects come on stream during 2015 and 2016.

Curbing Business Risks

Inter Pipeline’s growth is tied to how profitably energy producers can extract oil and gas from Western Canadian resources. Declining oil prices raised questions about Inter Pipeline’s ability to continue growing strongly.

However, according to estimates of the Canadian Association of Petroleum Producers, Western Canadian oil production should continue growing from the current 3.5 million barrels to 5.2 million barrels a day by 2030. If these forecasts are accurate, all the capacity that Inter Pipeline offers will be easily absorbed.

Pipeline companies are usually evaluated based on enterprise value to EBITDA and price to adjusted funds from operations. With both these measures, the company appears attractively priced compared with its Canadian peers.

From a valuation perspective, the current 5% dividend yield coupled with considerable growth over the next two years holds a big attraction. We consider the dividend safe given the company’s sound balance sheet and cash flow. The anticipated growth over the next two years is just icing on the cake.

A Dividend Champion

The company has an excellent track record of profitably expanding its business. The multibillion-dollar expansion projects of the past few years should start paying off in 2015 and 2016.

InterPipeline is a holding in our Dividend Champions Portfolio. In early June, we increased the weighting. Buy below C$31.